Pricing our youth out of a job

The Fair Work Commission has taken an unnecessarily risky path by granting a $13-a-week increase in minimum and award wages during the nation’s worst economic downturn in almost 90 years. Sure, it has staggered the operative date across seven months to try to provide relief for sectors under most strain, such as retail, tourism, hospitality and the arts, as commission president Iain Ross had signalled. And yes, it was below the ACTU claim of $30 a week. But if ever there was a time for a wage freeze it is now. As panel member Mark Wooden put it in a dissenting view, no change to the minimum wage would “do little damage to workers” but a small increase would affect businesses. Employers argue we have the rich world’s highest minimum wage — the new minimum hourly rate will be $19.84 or $753.80 a week — and small businesses, in particular, will be swamped as they try to claw their way out of the deep COVID-19 recession.

Young workers and small firms are being hit especially hard during the downturn. The jobless rate for 15-to-24-year-olds is 16.1 per cent compared with 7.1 per cent for all workers, and is likely to rise. As Professor Wooden argued in his decision, since the global financial crisis there has been substantial deterioration in employment outcomes for our young people. “The COVID-19 pandemic will only make this worse,” he wrote, noting that entering the job market during a recession has significant damaging impacts on future job prospects and earnings. As well, small businesses, where award-reliant workers are over-represented, will find it more difficult to stay above water, given reduced access to credit and a lesser ability to diversify risk.

In a sense, the commission had got ahead of the game through generous earlier decisions for the low-paid, with rises above the inflation rate. A wage freeze this year still would leave them far better off than they were a decade ago. As Professor Wooden advised, in the current environment, the wage panel should be prioritising jobs and hours over a wage increase. A small rise would do very little to improve the welfare of an individual worker but risk reductions in hours of work or even job loss. And for the unemployed? Obviously a $13-a-week increase does nothing for the many thousands of workers who are not in a job. Some of the early, worst-case official forecasts — a 20 per cent plunge in gross domestic product, a 20 per cent slump in hours worked — are now looking excessively gloomy. In any case, the coming months are likely to be grim, especially for the record number of under-utilised workers, people not in a job plus those who would like more hours in their current role.

The commission’s leap of faith makes the task of supply-side reform such as more workplace flexibility and innovation, less red tape and lower taxes even more urgent. If we are to give our young people and fledgling companies a decent chance of success, we need to ramp up the productivity agenda. Reserve Bank governor Philip Lowe said on Monday that coming out of the pandemic Australians would be risk-averse and less eager to spend, borrow and invest so we need to change our game if we are to have a more dynamic economy. “We can borrow to build a bridge,” Dr Lowe said, both literally and figuratively. “But without reforms we will meander along with mediocre growth.” That was our fate before the coronavirus, with sagging productivity and living standards, plus now we’re on track for $1 trillion in net debt, with our most inexperienced workers needlessly priced out of a job.