Fair Work Commission’s minimum wages decision: Key takeaways

Highlights

• The Fair Work Commission has increased minimum wages by AU$40 a week as soaring costs of living rage in the backdrop.
• The new minimum wages have been introduced amidst a rapid rise in the growth rate of major economic indicators, such as CPI and unemployment.
• The FWC believes that inflation could be extremely damaging for low-income households.

Australia’s Fair Work Commission (FWC) has announced a higher-than-expected hike in minimum wages on June 15. An annual wage hike of 5.2% has been declared, which is at par with the annual inflation rate of 5.1%. The move is expected to offer workers some relief in the highly inflationary environment. At the same time, the massive rise in wages has rung alarm bells for the Reserve Bank as it could contribute to further hikes in inflation.

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The Reserve Bank of Australia (RBA) is on a monetary policy tightening streak and has raised interest rates consecutively over the last two months. The RBA has warned that it will do whatever it takes to keep inflation under check.

However, recent surveys of consumer sentiment reveal that households might reduce spending in the coming months. Consumer sentiment has dropped to recessionary lows, calling for an urgent hike in wages. To spur economic activity during this period, the Fair Work Commission has announced a significant rise in wages.

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What are the new minimum wages?

The increase in minimum wages equates to an additional AU$40 per week, with the hourly pay rate lifting from AU$20.33 to AU$21.38. The modern award minimum wages have been increased by 4.6%, subject to a minimum increase for adult award classifications of AU$40 per week. The AU$40 wage bump is based on a 38-hour week for a full-time employee.

Effectively, modern award minimum wage rates above AU$869.60 per week will receive a 4.6% adjustment. Meanwhile, wage rates below AU$869.60 per week will be adjusted by AU$40 per week.

The decision came after the Australian Council of Trade Union (ACTU) proposed a 5.5% increase to the national minimum wages and modern award minimum wages. However, not all were in favour of such a large hike. In fact, some independent parties had argued that the minimum wages should not be increased at all. Meanwhile, the Australian Chamber of Commerce and Industry, Australian Industry Group and many other employer bodies had proposed an increase of between 2.5% and 3%.

What factors urged the FWC to take this decision?

The FWC has highlighted the rising costs of living as the main reason behind this decision. The decision was also based on the recent change in the growth rate of various economic indicators such as the Consumer Price Index (CPI), Inflation, Unemployment and Wage Price Index (WPI).

These indicators have shown a significant uptick in the 2021-22 review as compared to the 2020-21 review. Additionally, the labour market has also strengthened in Australia, paving the way for wage hikes.

Why is inflation dangerous?

The Fair Work Commission also highlighted its concerns regarding inflation and its potential impact on the Australian economy. The non-discretionary components of CPI have increased by 6.6% over the year to the March quarter of 2022. These non-discretionary items include basic food staples, which are a non-negotiable part of the household expenditure.

The deepest impact of a rise in the prices of non-discretionary items would be felt by the low-income households and the low-paid workers. At the same time, businesses are likely to be impacted, as they would incur higher input costs.

These higher input costs would then be forwarded to consumers so as to maintain profitability. Also, one cannot neglect that inflation erodes the real value of workers’ wages and reduces their living standards.