Why a minimum wage rise in line with inflation in 2023 could lead to job losses

Australia’s 2.7 million lowest-paid workers are likely to receive the biggest pay rise in a generation to help them weather the cost-of-living crisis.

But any minimum wage increase that keeps pace with inflation is likely to lead to job losses — with honest restaurants most at risk of losing customers, says a former industry umpire.

The Fair Work Commission’s decision, scheduled for June, will directly affect 180,000 retail, tourism and hospitality workers, who are expected to take home an additional $49 a week.

A six percent increase in the minimum wage is tipped to moderate inflation by June.

Such minimum wage increases are often repeated in national awards – covering more than 2.67 million Australians.

Professor Mark Wooden, who previously served on the Fair Work Commission’s annual wage review panel, said restaurants could cut staff if price hikes made to fund higher wages reduce consumer demand.

Wage theft, in which dishonest employers do not pass on the increase in the minimum wage, can also harm honest entrepreneurs.

“Either they have to pass the price on to the consumer, which I think most of them will,” he told Daily Mail Australia.

But some may feel – especially if their competitors aren’t paying the going rate – “Maybe they should cut a Tuesday or just work fewer hours or maybe cut a few employees here or there.”

“If they raise their prices, they may notice that fewer consumers are coming in — so if we pay $50 for our steak instead of $40 or $39 for your parmigiana instead of $30, there will be a few fewer plates sold.” .’

Professor Mark Wooden, who previously served on the Fair Work Commission’s annual wage review panel, said restaurants could cut staff if prices rise, to fund higher wages and reduced consumer demand.

Leisure workers would most likely be the first to lose hours.

“Some people don’t get that many hours – I’m thinking particularly informal people here – especially hospitality, many of the price-based industries have a lot of temporary workers, so their hours can be adjusted quite easily,” Professor Wooden said.

Professor Wooden, a labor economist, said Australia’s lowest-paid workers are likely to receive a six per cent pay rise from July 1, based on the fact that the industry arbiter has historically awarded raises in line with inflation so that workers don’t face a cut in real wages. experience wages.

“Normally they are happy to give a real wage increase,” he said.

A 6 percent minimum wage increase in a June decision would be even more generous than the 5.7 percent increase granted by the old Australian Industrial Relations Commission in 2006 at the height of the mining boom, and would be the most generous minimum wage increase since in 1990 an increase of 9.2 percent was granted.

Those now earning $812.60 a week would see their wages increase by $48.76 to $861.36.

The Australian Council of Trade Unions is pushing for a seven per cent increase, while employers, represented by the Australian Chamber of Commerce and Industry, are pushing for a more restrained four per cent increase – including a 0.5 percentage point increase to mandatory super at 1 July .

Australia’s 2.7 million workers, the lowest-paid workers, are likely to receive the biggest pay rise in a generation to help them weather the cost-of-living crisis (pictured, a Woolworths shopper in Sydney’s eastern suburbs)

Professor Wooden, a professor at the University of Melbourne’s Melbourne Institute of Applied Economic and Social Research, said the ACTU would have pushed for a higher minimum wage increase had Labor not been in power.

The former industrial umpire, who was dumped by Labor, suggested treasurer Jim Chalmers might have had a quiet talk with the union movement.

“The ACTU has been incredibly restrained,” he said.

“Had this been the government coalition in charge, I am absolutely sure their claim would have been much greater than seven.

“I think Mr. Chalmers had a chat in their ear and said, ‘We can’t handle 7.5, 8.’ I think the ACTU effectively sets the ceiling.’

Inflation fell to 7 percent in the March quarter, down from a 32-year high of 7.8 percent in the last quarter of 2022.

Treasury expects quarterly earnings from June to show inflation will moderate to six percent, with the Fair Work Commission likely to look to monthly data for April and May for a measure of the consumer price index.

Professor Wooden said an increase in the minimum wage in line with inflation is likely to add to inflation.

“If they comply with the law, all companies in the same situation will raise their prices, so inflation will rise,” he said.

“Obviously it’s inflationary — if it didn’t happen, you’d get less inflation.”

The Fair Work Commission granted a 5.2 percent increase in the minimum wage last year, which was slightly higher than inflation of 5.1 percent for the March quarter of 2022.

Retail workers saw their wages rise on July 1 last year, but tourism, aviation and hospitality workers had to wait until October 1.

Unemployment remained at a 48-year low of 3.5 percent in March.

But the Treasury expects the unemployment level in Australia to reach 4.25 percent by June 2024, which is still considered full employment by economists.

The Reserve Bank forecasts an unemployment rate of 4.5 percent by December 2024, following the 11 rate hikes since May 2022.

“Four point five percent by historical standards is incredibly good,” Professor Wooden said.

Budget papers predicted that inflation would have halved to 3.25 percent by then, bringing it within range of the Reserve Bank’s target of 2 to 3 percent.