The politics of opposition to a rise in the minimum wage are as predictable as they are unconvincing.
Last week, Bill Shorten detailed his party’s pitch to workers on low incomes by outlining plans to raise the minimum wage. This is, of course, Labor’s traditional territory, and it’s a secure footing from which the party leaders can set off on their campaign to differentiate themselves from the Coalition ahead of the May election.
Shorten has pledged that the Fair Work Commission (FWC) will inquire into the cost of living, income tax rates, transfer payments, employers’ capacity to pay wages, inflationary risks, and broader economic conditions to determine a “living wage” that ensures minimum wages at least meet the requirements of a reasonable standard of living.
It’s a pretty good idea for three reasons:
- it takes a comprehensive and (somewhat) independent view of the actual conditions in which workers and employers find themselves
- the FWC will carry the can for any political consequences of their findings
- and Labor are guaranteed to get the wage rises they want because the inquiry is certain to find wage stagnation has seen earning capacities fall way behind the rising cost of living.
By linking the minimum wage to the findings from this inquiry, workers are certain to get a wage rise that is fair, reasonable and necessary.
Opposition to a lift in the minimum wage will be handled by the usual suspects from industry and employer groups. Various government ministers have poked their heads up to voice their opposition, but this is a very difficult space for the government to make convincing good-faith arguments.
The government has consistently argued that economic growth will lead to wages growth, but predictions of organic wage rises have been plain wrong for many years now. Michaelia Cash, Josh Frydenberg, Scott Morrison and others will, of course, campaign against Labor’s plan, but to be arguing against direct intervention in wages is a brave choice when the country is experiencing unprecedented wage stagnation and underemployment.
With government MPs needing to be careful when criticising a lift in wages for the country’s lowest earners, the most prominent and regular voices opposing the FWC inquiry will come from peak employer and industry sources.
Last week the Australian Industry Group warned of “risks to a considerable swathe of Australian businesses that operate on low margins” and “distortions in the relativities between wage levels right up to the top levels in the classification structure”. That second claim is something I am yet to get my head around, but the vague language of increased risk to business is something industry groups predictably rely on when governments try to impose extra costs upon them.
The ‘risk’ to businesses from even a considerable rise in the minimum wage is negligible, at most. Approximately two and a half million workers would benefit from a lift in the minimum wage, and the FWC has lifted wages by 6.8% over the last 2 years.
The most bullish advocate for a rise in the minimum wage has been the ACTU, which has called for a 10.7% increase over 2 years. This is perhaps a little ambitious, but even a 10.7% increase in the minimum wage would add only 1.6% to the national private sector wage bill.
There are always businesses walking a thin line between ongoing viability and failure – over 200,000 small businesses deregister in Australia each year – and an increased wage bill may well be enough to force the most marginal of businesses to close.
Michaelia Cash last week warned that “under Labor, if this policy goes through, you won’t see a rise in wages, what you will see though is businesses close.” Apart from the apparent flaw in her logic – there will be no rise in wages, yet somehow that will cause businesses to close – the number of business failures attributable to a wage rise will be vanishingly small in the context of the entire economy.
“It will ultimately cost jobs”, Cash went on to say. And she is right about this. There will be businesses, small and large, that are sailing so close to the wind they will be unable to afford the extra wages and will have to lay off staff.
The problem with this argument, however, is it is factually correct but unquantifiable. Will there be ‘a lot’ of job losses, or ‘not many’? What we do know is more than half a million workers are involuntarily forced out of work every year, and more than two million people start a new job in that same time. The number of layoffs due to wage rises will have to be enormous if they are to materially impact those figures.
In fact, for those opposing a wage rise on the grounds that it will lead to job losses, history may suggest the opposite is true.
In 2015, a year when minimum wages rose by 2.5%, a total of 659,000 people were retrenched or dismissed from their jobs. Compare that to 2018, when minimum wages grew by 3.5% and 549,000 people lost their jobs. On the strength of those numbers, it is inconceivable that anybody can say with confidence that a rise in the minimum wage will have any material effect on job losses.
Labor’s use of the Fair Work Commission to achieve a living wage for minimum wage earners is an important intervention in a hopelessly stagnant part of the economy.
Wages must be brought in line with the cost of living or our most vulnerable workers will see their standards of living continue to fall. Economic growth and a tightening labour market is, in theory, supposed to lead to higher wages for everyone, but economic theory has strayed from economic fact for long enough now and it is well past time for an intervention.
Much will be said about this policy by the government and business groups. There will be charges of reckless economic management, prophecies of a surge in unemployment, and claims that struggling businesses will be sent to the wall. None of those criticisms are materially correct, and Australia’s lowest paid workers are long overdue their chance of catching up with the rest of the country.