Fair Work’s award and minimum wage rise won’t lead to higher interest rates, but it won’t ease the squeeze on households either

Fair Work’s award and minimum wage rise won’t lead to higher interest rates, but it won’t ease the squeeze on households either
  • PublishedJune 4, 2024

It’s the oldest bargaining tactic in the book — go in with an entirely unrealistic ambit claim in the hope that you get at least the minimum of what you want.

The union movement’s opening gambit was a 5 per cent wage rise for minimum and award wage workers. The Australian Chamber of Commerce and Industry’s (ACCI) counter was a pay rise of 2 per cent or less.

In a textbook outcome, the Fair Work Commission (FWC) landed almost exactly between the two, awarding a 3.75 per cent pay rise for Australians on the minimum wage, or the much larger group on awards.

It was a boring outcome that angered no-one.

“Any day working people get a pay rise is a good day,” said Australian Council of Trade Unions (ACTU) boss Sally McManus.

“This decision allows people to keep up with inflation and have a small real wage increase.”

Big business was a little more circumspect, with ACCI’s boss Andrew McKellar saying the outcome “tests the acceptable limits for businesses” but “does not pose a significant inflation threat so long as productivity is addressed.”

Small businesses, likewise, weren’t thrilled but also not outraged.

COSBOA’s Luke Actherstraat said it’s “easy for politicians to welcome rising costs when someone else is paying for it”, before adding the wage increase would likely cost jobs and push more struggling small businesses over the edge into insolvency.

Indeed federal Treasurer Jim Chalmers warmly welcomed the outcome, which was pretty much bang in line with the government’s calls for real wages (after inflation) not to go backwards.

“This is the real wage increase that low-paid workers need and deserve,” Chalmers told parliament in Question Time.

“This is a win for 2.6 million workers and their loved ones.”

Pay rise has no rate impact

Business people walk past a shiny black sign that reads "Reserve Bank of Australia".
The Reserve Bank of Australia is expecting wages growth of 3.8 per cent this calendar year.(AAP: Bianca De Marchi)

In taking very much the middle ground, the Fair Work Commission has triggered audible sighs of relief in the economics community including, no doubt, at the Reserve Bank where moderate real wages growth keeps Australia’s economy on the “narrow path” between lowering inflation and slumping into recession.

“We suspect the RBA would have welcomed today’s decision,” noted veteran rate watcher Su-Lin Ong from RBC Capital.

“Amid ongoing cost-of-living pressures and numerous anecdotes of these pressures, there was some risk of a larger increase.

“The FWC has been both fair and prudent.”

The RBA’s forecast for wage growth is 3.8 per cent this calendar year and 3.6 per cent for the coming 2024-25 financial year.

Again, Fair Work’s decision fits very neatly in that range.

Because of that, JP Morgan’s Tom Kennedy concluded, “we don’t think this outcome will move the needle on the [Reserve] Bank’s inflation/wage forecast or change its thinking on current monetary policy settings.”

Workers still living with a real pay cut

Kitchen worker uses tongs in a pub kitchen in Sydney.
Hospitality, retail and recreation are among the sectors dominated by workers on award rates of pay.(ABC News: John Gunn)

But, while Fair Work’s measured decision may have left most interest groups and experts feeling happy or at least relieved, it’s hardly cause for celebration for the quarter of Australian workers whose pay is based on awards.

Already, those workers make up only 11 per cent of Australia’s wages total — partly because they are disproportionately part-time, but in no small measure because they are on relatively low rates of pay.

And, as Fair Work pointed out in its decision, they will still earn less in real terms after July 1 than they did five years ago, before the pandemic.

That is, adjusting for the recent surge in inflation, award-reliant workers can afford to buy a smaller amount of goods and services than they could in 2019.

On top of that, those with loans are paying far more in interest, so their standard of living has gone decidedly backwards.

On CBA’s calculations, a wage rise of nearly 4 per cent was needed just for Australian workers to break even with inflation over the past half decade.

And breaking even is not economic success when the consensus goal is a long-term rise in the national standard of living.

On that measure, Australia’s corporate sector and economic policymakers have been failing for a long time.

Renowned economist Ross Garnaut used the term “dog days” in a 2013 book that warned of Australia’s stagnant economic outlook without fundamental reform.

It presciently described Australia’s lack of real income growth and living standards improvements from 2013-2019, with the nation already at real risk of its first recession in nearly three decades before COVID thrust it upon us in March 2020.

With plenty of signs that inflation may remain stickier and rates higher for longer, and even modest real wages growth sparking alarm that some businesses may collapse under the weight of extra wage costs, the economic outlook is far from rosy.

While Australia’s pandemic-induced economic shock may be over, it’s far too early to say that the “dog days” which plagued our economy for the decade before COVID are behind us.


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