Risks in minimum wage decision

Given lingering uncertainty about the economic outlook because of the pandemic, it is understandable that many businesses will be disappointed by Wednesday’s decision by the Fair Work Commission to lift the minimum wage. Businesses have faced a tough 12 months and have already been forced to absorb an increase to the compulsory superannuation levy for employees. The FWC said it had taken this into account when awarding a 2.5 per cent increase in the minimum wage.

The rise equates to an $18.80 a week pay increase for 2.2 million low-paid and award-reliant workers. The new national minimum wage will be $20.33 per hour, or $772.60 a week. The ACTU had sought an increase of $26.38 a week, while most employer groups had wanted any rise to be limited to $8.30 a week. As was the case last year, the FWC has staggered the timing of the increase to recognise that some industries, such as tourism and travel, are still disproportionately impacted by the pandemic. As Ewin Hannan reports, the Morrison government had warned against significant minimum wage increases, and had urged the commission to be cautious.

In the end, the FWC accepted the government’s positive commentary about the post-Covid economic rebound and split the difference between competing claims. It said the outlook had changed but risks remained. In the 2019-20 review decision, the FWC concluded there were “significant downside risks in the period ahead” and that the economic considerations “weigh in favour of greater moderation in terms of the outcome of the review”. In the FWC’s view, the present circumstances are very different, with a broad consensus in the submissions that the current performance of the economy has exceeded expectations. The FWC cited the RBA May 2021 Statement on Monetary Policy which revised GDP growth up from 8 per cent to 9.25 per cent over the year to the June quarter 2021, and from 3.5 per cent to 4.75 per cent over the year to the December quarter. Household consumption was revised up from 14 per cent to 15.5 per cent over the year to the June quarter, and from 4 per cent to 5.5 per cent over the year to the December quarter. The unemployment rate was revised down from 6.5 to 5.25 per cent for June 2021, and from 6 to 5 per cent for December 2021.

The FWC said while recovery was well under way and the overall outlook was much more positive than it was last year, it acknowledged the risk of domestic outbreaks and ongoing disruptions to other major economies. The FWC has aimed to preserve the spending power of low-paid workers without making it harder for them to keep or get a job. Employers need confidence that the economic recovery will continue. For this to happen, more work is needed to avoid unnecessary lockdowns, ensure borders stay open and to get the vaccine program quickly completed.