In the midst of discussions over future minimum wage rises and pay rate modifications, an analysis from the Australia Institute’s Centre for Future Work concluded that such adjustments are unlikely to have a substantial impact on inflation.
The study, titled The Irrelevance of Minimum Wage to Future Inflation, reviewed data dating back to 1997 and found no consistent association between minimum wage increases and inflation in Australia’s current economic setting.
According to the study, last year’s 8.65% increase in the minimum salary and 5.75% in other award payments helped to reduce the impact of recent inflation on low-paid employees. Despite the change, inflation fell three percentage points. This calls into question the long-held belief that raising the minimum wage leads to inflation.
The report went on to claim that a 5-10% increase this year would not only combat inflation but also bring low-wage employee earnings back in line with pre-pandemic levels. Firms may boost prices in reaction to wage increases, but experts expect the overall impact on inflation to be small.
The Centre for Future Work claims that a slight 2% drop in corporate earnings, which are still historically high, could totally offset a 10% wage increase.
Greg Jericho, Chief Economist for the Australia Institute and Centre for Future Work, stated that “Australia’s lowest paid employees have been severely hurt by inflation since the pandemic. There is a moral obligation to restore these Australians’ quality of life, and my study demonstrates that there is no compelling economic basis to reject them.”
“It’s vital the Fair Work Commission ensure that the minimum salary not only keeps up with inflation, but also grows gradually in real terms – as was the trend before the pandemic.”
