Jobs matter most in a recession

Australia has almost certainly entered its most severe economic recession since the 1930s. The scale of the contraction is likely to be far worse than the recessions of the early 80s and early 90s. This can already be seen in measured labour under-utilisation rates jumping to levels not previously observed, and this is before accounting for the many who dropped out of the labour force entirely.

My best estimate is that, in April, 23.8 per cent of all workers and potential workers in Australia were without any job or working part time in a job providing fewer hours than preferred.

The employment impacts are likely to be most acutely felt by workers in lower-paid jobs (and hence more likely to be award-reliant) and/or by new entrants to the labour market.

For them, the impacts can be serious, with permanent reductions in future employment prospects and future earnings.

During a recession, and especially one as severe as this, what is most critical for the incomes of workers and their families is securing a paid job providing adequate hours.

The requirement to provide an adequate safety net for workers means the Fair Work Commission should, in today’s environment, be prioritising jobs and hours over a wage increase.

A modest increase in the hourly wage rate will have at most a commensurately small effect on any individual worker’s total income. And it will have far smaller effects (and possibly negative effects) if that increase is offset by reductions in hours of work or job loss. A modest wage increase does nothing for the many thousands who are not in paid work.

The risks here are weighted in one direction. A zero change to the minimum wage will do little damage to workers. It is, for example, very unlikely that it is going to tip any additional households into poverty.

In contrast, an increase in award wages will add very little to a worker’s disposable income, while reducing the likelihood of businesses hiring new workers or of new employing businesses starting operation.

When viewed over a longer period, previous generous minimum wage increases mean that a zero increase this year will still leave minimum award wage workers far better off than they were a decade ago.

By raising award minimum wages by rates well ahead of rates of growth in consumer prices and the cost of living in previous years when the economy was expanding, the Fair Work Commission has put itself in a good position to defend a zero wage increase in a year when many employers have been forced to restrict (or even temporarily cease) operation and/or face declining demand.

There is widespread agreement that the Australian economy is in recession, with most indicators suggesting it will be severe — national output is expected to fall much more sharply than during the previous two recessions. Many Australians have already seen a marked reduction in their incomes and, among award-wage workers at least, this has been a direct result of a reduction in hours and in many cases the loss of employment. Given these economic circumstances, the requirement to provide an adequate safety net of fair minimum wages should lead the FWC to prioritise growth in jobs and hours over a wage increase.

For this reason, I recommend that award minimum wage rates remain unchanged in 2020-21. It is the reluctance to expand employment and hours that will be the biggest risk to the incomes of those most disadvantaged in the labour market over the next 12 months.

This an edited extract of Mark Wooden’s dissenting judgment in the Fair Work Commission’s minimum wage decision.