Kick-Starting Wage Growth: What the Commonwealth Government Could do NOW

by Jim Stanford

Australia’s economy continues to endure historically slow growth in wages and salaries, that is undermining household incomes, consumer spending, and economic growth. The Commonwealth government continues to predict an imminent rebound in wages – like in its most recent budget, where it yet again forecast wage growth accelerating quickly to 3.5% per year. But is the government willing to actually do anything to support wages?

The Centre for Future Work has released new research showing that just 3 specific actions by the Commonwealth government would lead to a significant rise in national wage growth, adding over $10 billion per year to aggregate wage income within three years. That doesn’t single-handedly solve the whole wages crisis, but it would be a big improvement.

The three measures simulated in the report include:

  1. Reversal of the reductions in penalty rates for Sunday and public holiday work in the retail and hospitality sectors.
  2. Introduction of a “living wage” mandate for Australia’s federal minimum wage, moving it toward a level that would lift full-time full-year workers above standard benchmarks of relative poverty.
  3. Removal of the Commonwealth government’s restrictive cap on wage increases for its own employees, and restoration of normal collective bargaining and traditional rates of wage increase.

Those three measures alone would boost wages for an estimated 3.3 million Australian workers, by a total of over $10 billion per year once fully implemented.That is equivalent to a 1.25% boost in aggregate national wage income, thus helping to lift overall wage growth in the economy as a whole from current sluggish rates (of 2.3%, according to most recent data) back toward normal historical rates (of 3.5% per year or more).

The report also considers broader positive benefits from supporting wage growth, including: stronger consumer spending (estimated to rise by $8.5 billion per year), stronger GDP growth (as businesses respond to the increase in purchasing power with expanded output and hiring), stronger government revenues (expected to rise by over $1 billion per year from these measures alone), and a positive spillover onto wage settlements in the rest of the labour market (as employers are pressured keep up with renewed wage growth).

Full report