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Why lifting the minimum wage is anything but reckless

stand for something”reckless and dangerous

That’s what former Prime Minister Scott Morrison said Prime Minister Anthony Albanese would be if he asked the Fair Work Commission for a pay raise big enough to cover inflation. It would be an Albanian “loose unit“on the economy.

Still, Albanian and his industrial relations spokesperson Tony Burke: prepare to do just that before the commission’s June 7 deadline, in time for the increase to take effect on July 1.

The increase would amount to a dollar an hour, raising the Australian minimum wage from $20.33 an hour to $21.36. New Zealand just raised the minimum from $NZ20.00 to $NZ21.20

New Prime Minister Anthony Albanese plans to ask the Fair Work Commission to grant a wage increase large enough to cover inflation.ABC News: Matt Roberts

Despite what Morrison and his team said in the campaign about previous governments to avoid recommending specific recommendations, Morrison’s predecessors Fraser, Hawke and Howard did it for yearsand the state governments are still doing it.

In March, when official inflation in Australia was 3.5 percent before rising to 5.1 percent, Victoria . advised 3.5 per cent.

And the government Morrison was a part of wasn’t shy about telling employers what to pay.

In 2014, Employment Secretary Eric Abetz advised “weak” employers not to give in to union demands, leading to a “wage explosion

Of course, there’s no guarantee that the Fair Work Commission will heed the new government’s push for a $1 per hour increase.

The committee is well placed to determine which pay increases should be awarded after considering all submissions. In all but one of the past 10 years, it has granted Lake than current inflation.

Whether it will do that again remains to be seen next month. But to pre-empt that announcement, here’s how the committee explained its thinking in its most recent decision in June last year

Most employees have no awards

When deciding on an increase in the minimum wage, the most important thing for the committee is the employers’ ability to pay (the profit share of the national income had climbed during five years in which the wage share had dwindled) and the standard of living of Australia’s lowest paid.

Only the lowest-paid 2 percent of workers get the national minimum wage, and another 23 percent get the minimum wages that the commission is adjusting at the same time.

Last year, the commission found that some minimum-wage households had disposable incomes below the poverty line and dreaded seeing them fall further.

It was also reluctant to grant a flat dollar increase that would bolster the position of low earners relative to higher earners, saying previous flat dollar increases “put pressure on price relationships and diminish the gains of skill acquisition.”

A percentage rather than a flat increase would particularly benefit women, as women at higher levels were “significantly more likely than men to get the minimum wage” and less likely through a contract or company agreement.

In determining the percentage of the increase to be awarded, it has given significant weight to the most recent increase in the Consumer Price Index (CPI). At the moment, that is 5.1 per cent.

The Commission rejected suggestions put forward again in the context of the last 5.1 percent increase in the CPI, they calculated the separately “cost of living employeeindex, which came in at 3.8 percent.

The employee cost of living index has risen less than the CPI because mortgage rates have fallen, while the CPI has not.

Low earners are not borrowers

The committee made the point that low-paid workers are less likely to own a home than higher-paid workers, making the CPI a better measure for them.

But not a perfect measure. The Australian Bureau of Statistics has begun dividing the CPI into “discretionary“(non-essential) purchases and other essential purchases.

The commission says that low-income households spend more of their income on essentials than higher-income households, meaning “non-discretionary“Inflation is especially relevant. Non-discretionary inflation is 6.6 percent.

The committee rejected suggestions that the increase it proposed could push Australians out of work or make it more difficult for young Australians to find work.

Which isn’t to say it couldn’t happen. During the 1970s and 1980s, high wage growth fueled both high inflation and high unemployment, the so-called stagflation

Wages don’t destroy jobs

But in the 1970s and 1980s, wages grew faster than the combination of price growth and productivity growth, making wage increases difficult for employers to afford. Recently, the profit share of national income climb instead of fallgiving employers an increasing capacity to pay.

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