A real wage increase in the Minimum Wage won’t cause inflation to rise

News has come out today that the Government’s submission to the Fair Work Commission for the annual wage review will recommend an “economically sustainable real wage increase” for the National Minimum Wage and the Modern Awards.

The Government doesn’t put forward a number it thinks it should go up by, but given the RBA estimated in February that by September, inflation will be a touch above 3.5% (and remember that prediction was made before the Iran War) that suggests they basically agree with the ACTU’s call for a 5% increase.

Business groups like ACCI instead are calling for a 3.5% rise, which would at best keep the real minimum wage steady, and at worst (and more likely given what we now know will happen to inflation) send the value backwards.

This is not a shock, to be honest. Today I have released my updated annual research on the link between the minimum wage and inflation. You can read the report here.

One of the things I looked at is what ACCI has proposed each year and compared it to what the FWC decided. It shows that had the business group had its way, those on the minimum wage would be much worse off.

And of course business groups are already out there suggesting if the minimum wage goes up by more than inflation it will send businesses to the wall and cause a wage-price spiral (they say this every year by the way).

But here’s the thing about the Minimum Wage and the awards wages – they don’t have any real link to inflation. I charted 30 years of the rises in the minimum wage with the inflation over the following year. And well there was no link at all.

The minimum wage and award wages are vital bulwarks against poverty. Forcing Australia’s lowest paid to take a real wage pay cut just because Israel hates Iran and has caused oil prices and inflation to rise would be pathetically cruel.

The Government is right to call for a real wage rise, and the ACTU’s 5% is very reasonable.