The analysis examines the correlation between minimum wage increases and inflation going back 30 years, and finds no consistent link between minimum wage increases and inflation.
It also reveals that such an increase to award wages could be met with only a small reduction in profit margins.
The report, authored by Chief Economist Greg Jericho, based on previous work by both he and Jim Stanford that has previously been cited by the Fair Work Commission, finds that an increase to the National Minimum Wage and award wages of between 7.5% and 11.1% in the Fair Work Commission's Annual Wage Review, due in June, is required to restore the real buying power of low-paid workers to pre-pandemic trends.
In this context the ACTU's claim for a 5% increase is clearly modest given even the 7.5% increase would not significantly affect headline inflation.
Key findings of the report include:
- Last year's decision, which lifted the minimum wage and award wages by 3.5 per cent, offset the inflation of the previous year but still left those on Modern Awards with real earnings below what they were in 2020.
- By June this year, the real value of Modern Award wages will be more than 4 per cent below what they were in September 2020
- There has been no significant correlation between rises in the minimum wage and inflation since 1995.
- Raising wages by 7.5 to 11.1 per cent this year is needed to offset both recent inflation and restore real wages for award-covered workers to the pre-pandemic trend.
- Even if fully passed on by employers, higher award wages would have no significant impact on economy-wide prices.
- A 7.5 per cent increase in award wages could be fully offset, with no impact on prices at all, by a 1.5 per cent reduction in corporate profits - still leaving profits at pre-pandemic levels
"Australia's lowest paid workers have been hardest hit by inflation over the past 4 years and are set to be hurt the most from rises due to the Iran War," said Greg Jericho, Chief Economist at The Australia Institute.
"The price rises of necessities always hurt those on low incomes more than those on average and high incomes. This analysis shows there is no credible economic reason to deny them a decent pay raise above inflation.
"It's vital the Fair Work Commission ensure that the minimum wage not only keeps up with inflation but also returns the value to the real trend of before the pandemic."
