The ACTU has submitted a revised minimum wage claim to the Fair Work Commission (FWC) in response to the spike in the inflation rate to 5.1%. The peak union body is now seeking a minimum wage rise of 5.5 %, or $42 per week, up from its initial claim in late March for a 5% increase when inflation had been forecast to peak at 4.25% in mid-2022.
Australian Industry Group CEO Innes Willox says the revised wage claim increases the risk that inflation will become entrenched and interest rates will rise further. Australian Chamber of Commerce & Industry Andrew McKellar also says an unsustainable rise in wages would threaten the viability of many small businesses.
“Wages are not pushing up inflation and there is ample room for positive real wage growth without adding to inflationary pressures,” [the ACTU] said.
However, Australian Industry Group chief executive Innes Willox said “the even higher increase in minimum wages now proposed by the ACTU clearly adds substantially to the risks of entrenching inflation and greater increases in interest rates”.
“Such outcomes would have adverse impacts on the economy, on unemployment, underemployment and sentiment and would be a setback for many low-income households,” he said.
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said: “As the Reserve Bank has already warned, aggressive wage increases have the potential to spur greater inflationary pressures…
McKellar said unions were pushing for “aggressive wage increases in the absence of productivity growth”.
“The reality is we won’t be able to lift real wages without first restoring productivity growth which has languished for the past decade”…
“Indeed, businesses are already facing rising costs with three in five firms experiencing price increases greater than usual in the last three months,” he said…
However, the ACTU’s submission says that labour productivity, while averaging 0.9 per cent over the past five years, actually grew by 2 per cent in 2021 – at the same time as workers suffered a 1.2 per cent real wage cut.
“The problem is workers are not being rewarded for their efforts to increase productivity with commensurate and proportionate real wage increases,” it said.
Unions’ wage claims are understandable given both headline inflation and inflation expectations have soared above 5%, on the back of soaring petrol prices.
Australian workers have also experienced a decade where wages lagged way behind labour productivity:
Australian workers fell badly behind last decade.
This drove wages’ share of national income to around its lowest level on record:
Wages share of national income has collapsed.
That said, the ABS’ employee cost of living index rose by a smaller 3.8% in the year to March, suggesting cost of living pressures are less than what unions claim:
In theory, workers should be compensated for underlying inflation (3.7%) plus any labour productivity. Viewed this way, the ACTU’s 5.5% wage claim is not as outlandish as the employer groups claim.
The concern is that the unions’ minimum wage demands, if not matched by productivity, will lift labour costs and aggregate wage growth, which would prompt the RBA to raise interest rates more aggressively.
The FWC will need to tread carefully. Perhaps a minimum wage increase of around 4.5% is a fair compromise.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also Chief Economist and co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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