Saturday, June 7, 2014

Rapid Reaction to the 2014 Annual Wage Review

Well, I picked it (pretty much)! Fair Work Commission has announced that minimum wages will increase by 3 per cent in July. (The announcement was made on Wednesday, meaning the ‘Rapid Reaction’ part of this post refers to the speed with which I am typing down my thoughts rather than the speed at which I have reacted to the decision – frankly, I only found out that the decision had been made because a friend told me at the bar last night.)

But the important thing is not whether I got the decision right – it is whether it is the ‘right’ decision. The increase does (just) cover the average increase in consumer prices, and is actually a little more than the low growth in average wages over the past year. The subdued labour market looks to be the main reason that the increase is 3 per cent rather than, say, 4 per cent, as there is not a lot else in the decision that indicates economic conditions are on the bleak side. Not going gangbusters to be sure, but not bleak either.

The Fair Work Commission noted that earnings inequality has increased over the past decade. What is left out is their own part in contributing to this trend, with the increases in minimum wages they awarded in 2012 and 2013 being well below average wage growth. But I have banged on about that here a lot already, so I will not do it any further. Let us see what they do next year on that one.

Other than that, I have nothing much to add. It was a predictable and uncontroversial decision, which is not necessarily a bad thing. With economic and labour market conditions forecast to be fairly similar over the next two years (but then again, when are they not?), we might see minimum wage increases with a 3 at the front for a couple of years yet. Not particularly exciting, but the goal of economic managers should be to make everything boring, so we shouldn’t complain too much.

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