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Minimum wage freeze good for business?

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The Fair Pay Commission froze the minimum wage yesterday for the first time since the 1982 recession, citing economic pressures on employers.

Unions had sought a $21-a-week increase and the government had asked the commission to support a “considered rise”. But the minimum wage will now remain unchanged at $543.78 a week (or 14.31 an hour).

Michael Stutchbury, Economic Editor, The Australian: “…it is madness to force business to pay more to employ low-skilled workers during the deepest downturn in the world economy since the 1930s.”

Julia Gillard, Minister for Employment and Workplace Relations: “The reality is that the pay packets of low-income working Australians have gone backwards… In real terms, in relation to wages, Australians who are reliant on minimum wages are going to experience a real wage reduction.”

Professor Ian Harper, Fair Pay Commission, ruled a minimum wage increase would result in job losses and company closures. He found the Rudd government’s tax and transfer changes, combined with the stimulus packages, had delivered “significant” disposable income increases to the low-income households.

Sharan Burrow, President, ACTU: “It will not only make things harder in the homes of working Australians – 1.3 million Australians – it will be felt in the high streets, in those shops, and in small business, in every main street, in every community or suburb across Australia.”

Queensland Chamber of Commerce & Industry said that a survey of employers had found that a $10 to $15-a-week rise would have forced 81 per cent of respondents to cut staff.

David Gregory, Workplace Policy Director, Australian Chamber of Commerce & Industry: “Certainly we think that it’s the best outcome in that context for Australian businesses. It’s also the best outcome for Australian employees in terms of preserving Australian jobs.”

The Economics:

When inflation is rising, zero movement in minimum wages equals a wage reduction for effected workers in real terms. Australia experienced a 2.5 percent inflation rate for the 2009 March Quarter. The proposed $21 increase would have been roughly equivalent to a 3 percent pay rise, making low page workers 0.5 percent better off.

Your say:

When a worker is asked to take a pay cut in the short-term to overcome financial difficulties experienced by their employer, is the worker better off over the longer-term? Sure, the worker has a job. But is the reduction ever re-couped, as measured against inflation and CPI? If the Fair Pay Commission had authorised the three percent pay rise (putting extra money in workers’ pockets), would that have made a positive impact on overall economic activity or would that form of ‘stimulus’ be cancelled out by job losses?
Vote above or leave your comment below.

Photo: timmenzies (flickr)

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