Study Shows Wage Hikes Are Unlikely To Cause Inflation


There have been talks about possibly raising the minimum wage and changing pay rates. The Centre for Future Work at the Australia Institute did a study that showed these changes probably won’t have a big impact on inflation.

The study, called The Irrelevance of Minimum Wage to Future Inflation, looked at data from 1997 and found that for Australia’s present economy, there was no steady link between rising the minimum wage and a rise in economy. 

The study found that the 8.65% increase in the minimum wage and the 5.75 percent increase in other award pay last year helped low-wage workers deal with the effects of recent inflation. Even with this change, inflation went down by three percentage points. This goes against the common belief that raising the minimum wage leads to higher prices.

Related link: Despite Rising Inflation, Singaporean Wages Will Grow In 2024

The study also said that this year’s 5–10% rise would not only fight inflation but also bring low-wage worker pay back in line with what it was before the pandemic. The general effect on inflation is not expected to be very big, even if employers raise prices in response to a wage hike.

The Centre for Future Work went one step further with their research and said that a small 2% drop in corporate profits, which are still at an all-time high, could fully cover a 10% rise in wages.

The Chief Economist for the Australia Institute and Centre for Future Work, Greg Jericho, said, “Inflation has hurt Australia’s lowest paid workers the most since the pandemic.” It is the right thing to do to improve these Australians’ quality of life, and this study shows that there is no good economic reason not to.

“The Fair Work Commission needs to make sure that the minimum wage not only keeps up with inflation but also grows slowly over time, like it did before the pandemic.”

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