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  • Writer's pictureEdwin and George

The case for higher wages

Updated: May 20, 2021

Uber Eats delivery riders in Sydney earn less than the minimum wage during peak meal times, a NSW Upper House inquiry has heard. (1)

Wages are in the headlines.

The Fair Work Commission’s minimum wage decision in May, for example, comes at an important time in Australia’s economic recovery.

Before the pandemic, wage growth slowed – to an average of under 2% per annum from 2015. Now, wages are almost at a standstill.(2)

‘Wage growth slumped to its lowest rate ever to December 2020 at 1.4% per annum. There’s a long grind ahead for fatter wage packets.’ (3)

In 2020, The Fair Work Commission increased the minimum wage by 1.75% - the smallest rise in 12-years. It’s under political and business pressure to announce a freeze or a small increase for 2021. The economy is performing well – but wage growth lags. The response to the pandemic for the labour market has been longer hours and stagnant wages.

In its submission to the minimum wage review (which determines whether 2.3 million award-covered workers get a wage increase this year), the government is opposing any significant increase.

It claims that even a moderate rise in the minimum wage will threaten employment in the wake of the pandemic. The standard line is: ‘If employers have to increase wages, they’ll cut jobs.’

This is wrong.

For small firms, the biggest barriers to growth are low confidence and spending. They depend on Australians having money in their pockets. So the obsession of the government with low wage growth backfires.

And larger businesses can afford higher wages.

Profits increased by 15% in the last 12 months - the first recession in Australian history when profits rose. (4)

The biggest beneficiaries of low wages are the market dominators like the supermarkets – alongside utilities and telecommunications companies - who profited handsomely during the pandemic:

  • These were companies that were the big beneficiaries from the Job Keeper scheme.

  • They have by far the biggest minimum-waged workforce – hundreds of thousands of workers.

Surging demand signals a strong rebound for UK economy.’ (5)

This why we need higher wages – to drive a rebound in spending across the economy.

Women also depend disproportionately on the minimum wage decision – they comprise 61% of award-dependent workers.

With women returning to part-time, casual and low-paid roles last year, the gender pay gap across all jobs (including part-time and full-time) widened from May to November, reaching 31% . (6)

The reasons for this are:

  • Women suffered disproportionate job losses when the pandemic hit - as the economy recovers they are returning to jobs that are relatively more insecure

  • Job-creation since May (the worst month of the recession) has been heavily concentrated in casual and part-time jobs. From May to November, casual jobs made up over 60% of new jobs –and women filled 62% of those casual roles.(7)

The single most powerful thing that will close the gender pay gap is a strong increase in the minimum wage.

More than any other issue, the debate over minimum wages reveals the fundamental issue in Australia’s increasingly unequal economy:

  • On one side are large and powerful companies determined to weaken workplace laws supporting workers’ incomes.

  • On the other side are millions of workers who depend on minimum wage laws to secure their basic needs - and small businesses which depend on domestic spending power.

In 2020, Jim Stanford from the University of Adelaide published research on the wages crisis in Australia:

‘The erosion of workers’ rights is the most consequential and actionable factor behind the stagnation of wages in Australia.’ Also, wages in more concentrated labour markets (where large companies dominate) are 17% lower than wages in less concentrated labour market – Australian workers suffer because of this.’ (8)

Indeed, research found that higher minimum wages do not destroy jobs – they actually boost employment.

Reasons for this include:

  • Higher labour force participation and productivity among low-wage workers

  • Better job retention and lower turnover, reducing costs of job search and training giving companies more money to employ workers

  • More money in workers’ pockets, leading to more consumer spending. (9)

Australia’s minimum wage is now 54% of average wage. In 1992 it was 65%. We once had one of the strongest minimum wages in the world - but no longer. The UK, France, New Zealand, Portugal and several other countries have higher minimum wages (compared to average wage).

New Zealand recently increased theirs by 6% – and their economy is growing strongly. They understand that propelling a full recovery requires workers to have money to spend.

The argument that lifting Australia’s minimum wage will cost jobs is outdated and unconvincing.

After last year’s very modest increase, a more generous increase will strengthen Australia’s pandemic recovery, not jeopardize it. (10)

  1. ABC, 12 April 2021

  2. The Guardian, 7 April 2021

  3. Sydney Morning Herald, 21 April 2021

  4. Business Insider: 10 March, 2021

  5. Financial Times, 17 April 2021

  6. Centre for Future Work (8 March 2021

  7., 8 March 2021

  8. Global Perspectives on Wage Stagnation, Stephen Kinsella and John Howe

  9. Myth and Measurement: The New Economics Minimum Wage and Employment, David Card and Alan B. Krueger

  10. The Conversation. 12 April, 2021

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