Today the Government has announced that it will recommend to the Fair Work Commission for an “economically sustainable real wage increase to Australia’s award workers.”

If you are unshocked by that announcement – congratulations, you still have retained your hold on reality.

All the government is saying is that they believe that the minimum wage (which is a whole $24.10 an hour) should rise by more than inflation – but not by so much that it would affect inflation.

This of course has been met with scare headlines from The Australian and the AFR of “Labor pushes for above-inflation wage rise despite RBA warning”.

They are trying to pretend that the RBA warned yesterday about a tight labour market still maybe putting pressure on inflation and well… please. The RBA has been saying that for three years and they have been wrong for three years.

Wages growth is coming down, inflation is under 3%.

Business groups argue this will set off a wages-price spiral and send businesses to the wall because… well they always do that.

In 2017 when inflation was just 1.5% and the RBA was actually worried that it was too low, the Australian Chamber of Commerce and Industry recommended to the Fair Work Commission the Minimum wage rise by just 1.2%. So even when inflation was well below the RBA;’s target range, business groups still thought the minim wage needed to be increased by less than inflation because… well cruelty might be a factor, because economics surely is not.

If you are waiting for business groups to argue for a real wage increase for the poorest works, then you will be waiting for a very, very long time.

Thankfully the FWC has ignored them – the real wages of those on Minimum wages normally goes up each year – because people’s living standards should improve! Each year inflation rises and so the value of the minimum wage falls and each year the FWC increases the minimum wage y a bit more than inflation to recover that lost value.  

The problem is the past 4 years have seen the rise of the minimum wage fall behind where it was in the decade up to the pandemic.

So an increase in the minim wage above inflation is not scary – it is normal.

And the good news for The AFR and The Australian and business groups is they can stop worrying. Our research has shown that there is absolutely no connection between increases in the Minimum wage and inflation. Why? Because they account for a very small amount of the total wages of all Australian workers – they are the poorest paid, after all.