Academic journal article Journal of Australian Political Economy

The Erosion of Minimum Wage Policy in Australia and Labour's Shrinking Share of Total Income

Academic journal article Journal of Australian Political Economy

The Erosion of Minimum Wage Policy in Australia and Labour's Shrinking Share of Total Income

Article excerpt

The long-run decline in labour's share of GDP in Australia over the last generation, and the consequent increase in personal income inequality, has coincided with a parallel erosion in the real economic 'bite' of Australia's minimum wage over the same period. This correlation is not surprising, since an active and ambitious minimum wage policy was one of the most important policy tools invoked to support real wage gains through the initial postwar decades. Minimum wages establish a floor for wage outcomes, and thus influence the distribution of economic output between labour and capital. So the weakening of minimum wage policy since the 1980s, evident not only in the statutory level of the minimum wage but also in the scope and strictness of its application, naturally helps explain at least part of the subsequent decline in relative labour incomes. Minimum wages have been relatively stagnant in real terms over this period, and have lagged well behind both overall average and median wages, and behind average labour productivity growth. Organs of government including the Treasury (Belot and Doran 2017) and the Reserve Bank of Australia (Martin and Bagshaw 2017; Lowe 2017a; Lowe 2017b; Bishop and Cassidy 2017), and even parts of the private sector (Turner 2017), have recognised that stagnating wages are undermining Australia's economic performance. International institutions such as the IMF (IMF 2017) and the OECD (Schwellnus et al. 2017) have also supported the view that wages need to increase in real and relative terms, in order to support macroeconomic expansion and household financial stability. Most of these mainstream discussions of the problems of wage stagnation ignore or barely allude to the role of labour market regulation and industrial relations in explaining weak wage growth. However, some mainstream analysts recognise these institutional factors behind wage stagnation: for example, Bishop and Cassidy (2017:16) acknowledges that 'low wage growth may reflect a decline in workers' bargaining power', while Watson (2016) concluded that increasingly casualised work and the erosion of collective bargaining have also suppressed wages.

This article investigates the relationship between minimum wages and the labour share of GDP empirically. It sets out a range of indicators to evaluate the trend in minimum wages against the criteria stated in minimum wage legislation. Based on these indicators, the article finds that the present process of minimum wage determination does not adequately attain the objectives originally proclaimed in Australia's minimum wage policy. Where a more ambitious vision of minimum wage regulation once helped to lead an ongoing improvement in workers' living standards, this is no longer the case. Instead, the minimum wage is treated as a bare-bones 'safety net', one which cannot even lift a full-time full-year worker out of poverty. Its effect is further undermined by the growing number of workers who are not even covered by minimum wage laws (due to their categorisation as self-employed or independent contractors), and by a demonstrated and systemic failure to enforce minimum wage laws even where they do apply. All this is has contributed to a widening gap between minimum and average wages in Australia, widening inequality, and the long decline in the labour share of income.

The next section of this article defines the minimum wage and examines its historical evolution in Australia (including its performance relative to other countries). The following section describes the formal process for setting the minimum wage and critically considers the stated objective for minimum wage policy, as defined in the Fair Work Act (2009) (FWA). Next comes a section reviewing the long-standing debate over the impact of minimum wages on employment and refuting the notion that stronger wage regulations would undermine employment growth and create unemployment. The concluding section calls for a reform in the guidelines for minimum wage policy to reestablish the original goal of ensuring a 'living wage' for Australian workers, thus helping to arrest and reverse the long decline in labour's share of GDP. …

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