Pricing workers out of jobs would hold back recovery

Fair Work Commission president Iain Ross has put an interesting question to the Morrison government, trade unions and employers. Justice Ross has asked whether low-paid workers in industries struggling in the wake of the COVID-19 pandemic should face a second successive year of delayed increases in the minimum wage. Sharp battlelines are being drawn. The ACTU is pitching for a 3.5 per cent or $26.38-a-week increase from July, to be paid to 2.2 million workers, arguing that a failure to boost workers’ pay packets “threatens the entire recovery”, Ewin Hannan reports. At the opposite end of the spectrum, the National Farmers Federation and Business NSW, the peak employer organisation of our largest state, want the Fair Work Commission to award a zero increase, citing weakness in the economy and vulnerability of businesses.

That is part of the picture — in some sectors. The latest Deloitte Access Economics quarterly forecast shows the economy growing by a healthy 4.9 per cent in 2021 after contracting by more than 1 per cent in 2020. But after a remarkable job recovery, the forecast says, “things will be cloudy, with many stories of individual business closures and job losses amid the end to JobKeeper’’. The report predicts unemployment of 5.6 per cent by late this year. The big bump in economic growth from the recovery will gradually fall away as government assistance eases and future growth becomes “more of a grind’’.

In July last year, the Fair Work Commission granted a 1.75 per cent increase, or $13-a-week minimum wage increase — a worthwhile boost. In view of the impact of COVID-19, its timing was staggered across different sectors. Frontline health, aged-care, childcare and other essential services workers received the rise from July 1. Construction and manufacturing workers benefited from November 1. And staff in tourism, hospitality, airlines, restaurants, retail and the arts — the sectors hardest hit by the pandemic — received it on February 1 this year. Given the severe threat to jobs and profits posed by COVID, especially in the tourism and hospitality sectors, the staggered approach made sense. And, after paying an increase in February this year, it is reasonable, as Restaurant and Catering chief executive Wes Lambert says, that COVID-impacted employers should not be forced to fund two pay rises in five months. Any new increase, as Mr Lambert says, should not be applied to the sector until February next year. That delay could save jobs and keep businesses going until more of the economy opens up and stays open, activity picks up in central business districts and international visitors return. For good reason, the government is urging caution, telling the Fair Work Commission that increasing the minimum wage this year could be a “major constraint to small business recovery” and cost jobs. The risk of domestic COVID outbreaks and disruptions to other major economies are such that the economic climate remains uncertain.

Much will depend on how soon and how effectively vaccination programs eliminate the risk of major COVID outbreaks here and overseas. Delays to Australia’s vaccine rollout will not help, with businesses reliant on the reopening of international borders facing an uncertain year. Economists are confident the latest news around the AstraZeneca jab will not be enough to meaningfully “shift the dial” on the pace of the recovery. But they also predict most Australians will not enjoy a return to pre-COVID normality until early next year. Snap lockdowns and domestic border closures will remain a feature of day-to-day lives, Ernst & Young chief economist Jo Masters says on Monday. International borders being closed for longer would have knock-on effects for tourists, international students and migration — “all important drivers of economic activity”.

The principle that all employees are entitled to at least a minimum wage — the lowest amount they can be paid for their work — is an accepted part of workplace relations in Australia. Those workers, traditionally, all receive a pay rise at the same time. A second year of delaying pay rises for workers in sectors experiencing economic hardship could set a precedent, one that unions would oppose vehemently. But it would bring some flexibility to workplace relations and link wage rises to employers’ ability to pay, which would help struggling small businesses.

ACTU assistant secretary Scott Connolly told The Australian recently that “profits are soaring over 8 per cent and the Reserve Bank is calling for wage growth above 3 per cent, but the federal government still wants the minimum wage to go backwards in real terms’’. In its March board meeting, the RBA said it would “not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth would need to be materially higher than it is currently’’. But this would require significant gains in employment, the RBA said, and a return to a tight labour market. That will come about, however, when economic activity, demand and profits lift. Forcing industries adversely affected by COVID to pay 3.5 per cent wage rises from July 1, as the ACTU demands, would harm the jobs market, many workers and the wider economy.