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

By McKenzie, Margaret | Journal of Australian Political Economy, Winter 2018 | Go to article overview

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


McKenzie, Margaret, Journal of Australian Political Economy


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. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

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

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.