Minimum Wage Increase History Australia
Wages in Australia are set by the Fair Work Commission under the Fair Work Act 2009. This is an important part of our unique system of regulated wages.
The commission has announced a 5.75% increase to the national minimum wage (NMW) and realignment of some modern awards. This will affect many Australian workers.
What is the minimum wage?
The minimum wage is a legal rate of pay set by the Fair Work Commission that must be paid to employees in most workplaces. It is designed to ensure that workers receive at least a living wage, incentivise them to seek employment and minimise negative impacts on recruitment.
The FWC has issued two annual wage review decisions since its first year in government, increasing award wages by 5.75 per cent and 8.6 per cent. These decisions have been a huge boost for 2.7 million Australians and are the largest increases to awards in history.
However, this is a very small part of the overall picture, which shows that the average growth in wages is below trend and that many industries are experiencing subdued wage growth. This is mainly due to efficiency wage theory, which states that employers must pay workers enough to keep them motivated, yet not so much that it becomes prohibitively expensive for them to recruit and retain staff.
Why is the minimum wage important?
The primary purpose of a minimum wage is to aid the nation’s lowest paid workers. These individuals lack the bargaining power to secure a sufficient income, and so rely on minimum wage increases as a safety net. In doing so, the minimum wage can reduce poverty and promote social stability.
In competitive markets, a minimum wage will raise wages above the prevailing levels and may force some firms to lay off workers. However, in some markets, companies may enjoy monopsony power and therefore be able to dictate wages above the market rate. In this situation, a minimum wage will lower the company’s marginal cost of hiring and thus increase employment.
However, many businesses are still unsure how a minimum wage rise will impact them. Retail and hospitality business owners in particular fear that higher wages will further strain their finances and lead to staff redundancies. This will further impact consumer spending and ultimately the Australian economy.
How does the minimum wage work?
The minimum wage is a legal rate that must be paid to employees in certain industries. It’s determined by an expert panel at the Fair Work Commission and is reviewed annually. The minimum wage is paid to workers who are covered by an award or a registered agreement that is approved by the FWC, such as a piece rate or enterprise agreement.
Young workers may also be entitled to a separate minimum wage, which is usually a percentage of the adult wage. This is specified in an award or by a registered agreement, such as the WISe Agreement 2023.
It’s important to note that the national minimum wage is not enough to avoid working poverty, as it does not cover the cost of basic living expenses for a family of four. However, increasing the minimum wage can help to reduce poverty and improve workforce participation.
What are the consequences of a minimum wage increase?
Increasing the minimum wage will lift the earnings and family incomes of low-wage workers, lifting them out of poverty. However, it will also increase costs for employers and potentially lead to job losses.
The exact impact is hard to predict. The empirical evidence is mixed, and depends on the methodologies and datasets used. Similarly, economic theory cannot provide clear predictions. Some models predict that a minimum wage rise will reduce employment, while others predict the opposite.
The decision to raise minimum wage and award wages will impose significant costs on businesses, particularly those in the retail and hospitality sectors. Innes Willox, the chief executive of Ai Group, has warned that the move is a “hammer blow” to small businesses who are already struggling to cope with rising costs and declining consumer spending. Those who are covered by industry awards (about 260,000 Australian businesses) will see their payroll costs increase considerably. You can use the Fair Work Pay Calculator to find out what the changes will mean for your business.