Written by Hudson Adviser Michal Park
With Australia currently in the grip of a crisis in wage growth, with real wage growth for Australian workers at near all time record lows (with nominal wages having grown at about 2% since 2015), the Labour government have again floated the idea of a “living wage” to benefit the 1.2million workers currently on the minimum wage of $18.93 per hour.
I hesitated before writing this article given the political nature of it. Rather, I wanted to focus on the humanitarian aspect of it – the idea that a living wage is a socially acceptable wage designed to keep minimum wage earning workers out of poverty which I wholeheartedly support.
To clarify, the difference between the minimum wage and a living wage is:
- Set by the Fair Work Commissions each year (latest rise in the minimum wage was 3.5% from July 2018 taking it from $18.29 per hour to the current $18.93 per hour)
- Based on factors including business competiveness, employment growth, and the needs of the low paid.
- Would replace the minimum wage (unlike models in the US where minimum wage and living wages co-exist and the UK where the Low Pay Commission recommends a national minimum wage increase each year)
- Based on factors including internet and mobile phones but, primarily, to eliminate poverty among those who work by raising the wage floor.
I’ve thrown this discussion around with colleagues and some of the key comments back have been:
- Why doesn’t the government pay for it via increased welfare benefits?”
My problem with providing the increase through welfare is that it won’t just benefit those engaged in paid work. It would also benefit those not working and might even encourage more people to drop out of the workforce.
- “A living wage will only increase inflation”
Yes, employers could pass on their increased wages costs to the end consumer, leading to inflation, but given that those who benefit from a living wage would only amount to less than 5% of the population, would it really make such an impact?
- “Nothing will change for the worker as the employer will only cut their hours to account for the increase in pay”
This is definitely a risk, however, only if the living wage is set too high.
The general consensus is that the pros definitely outweigh any cons of setting a living wage. Some are pushing for the living wage to be set at 60% of the median income, however, with the current minimum wage set at 54%, a jump this high would be a major con.