Will the minimum wage decision help the government?

The industrial relations scare campaign isn’t going so well. Not only are jobs being created at a surprisingly fast rate, but now the Australian Fair Pay Commission has delivered a pay increase for minimum wage workers that nearly equalled what was, presumably, the union ambit claim. ACTU Secretary Greg Combet is describing it as a

a slap in the face for the government and the business community, which had wanted a smaller increase.

It’s certainly bad news for business, which must pay the higher rates, and perhaps some unemployed people who will be priced out of the labour market. But politically it is good news for the government, in the face of persistently negative polling on their reforms

As I noted in several Catallaxy posts, public opinion on the IR reforms has been remarkably stable – people made up their minds very early on, and nothing either side said seems to have produced any real net change. The interesting question now is whether as information contradicting union/ALP scare campaigns mounts it will start to reduce the proportion of voters opposing the reforms.

20 thoughts on “Will the minimum wage decision help the government?

  1. It might be a plus for the government’s re-election plans in one sense, but I reckon it’s a defeat. It will introduce another twist in the screw of growing inflation, forcing at least one further interest rate increase after next month’s virtual certainty. So what Howard gains on the IR front he will lose on the economic management front and the line that “he’s broken an election promise about interest rates.”

    Seems to me a first step in the early seventies scenario – wage push, capacity constraints, escalating inflation.


  2. A foolish wage increase that will put pressure on the improving employment situation both directly and through the inevitably longer-term effects on interest rates.


  3. I’ll have to see what the macro people say about inflation, but this is not that large in % terms, and it only covers 12% of the workforce. We’ve had strong real wage growth for years without a 1970s scenario arising.


  4. Colour me as flabbergasted as Greb Combet. Did another federal government appointment “go native”? Or is it an orchestrated one-off to take the heat off the workplace changes? Either way it doesn’t seem like the smartest move for the reasons whyisitso stated.


  5. i’m a bit mystified by it, but i think the govt and business groups will sell it as hard as they can. as i explain at stoush, it’s a catch up pay claim – basically keeps very slightly ahead of inflation (factoring in that it’s 6mths later than normal).

    in that sense i do think it’s strange, because i have a hell of a lot of trouble believing that that’s a policy outcome the government would have wanted. political outcome, absolutely, but not policy.

    this is why if i were leaning towards suspecting the AFPC of leaning one way or another it would be to the govt. offering some political cover on IR, the interest rate rise was locked in anyway, and lets the business groups whinge about wages being too high again. perfect outcome for them.

    all the while, the wage rises a meagre 0.11% in real terms (matches flat productivity growth i guess).


  6. A journo I just chatted with reckons it’s precisely headline CPI, which is what the feds used to recommend in their AIRC submissions. Which raises a different question – why was the ACTU claim so close to CPI?


  7. ‘why was the ACTU claim so close to CPI?’

    Because the unions are normally lazy and useless.

    They obviously believed their own thetoric and were too busy playing silly-buggers trying to score cheap points (i.e. expecting a small increase) rather than doing the right thing by their members.


  8. I agree with Sinclair.

    Further, it was silly politics for Combet to come out and call it a slap in the face for the government because it completely undermines the scare campaign that has been run on the issue. So now, heading into the election, he’s going to have to argue that the government appointed this body to do its bidding, overhaul IR and cut wages, but… uh, it didn’t do what the govt wanted it to and it raised wages about how much the unions asked for…..?

    You can always rely on some lefties to contradict themselves, commonsense and the bleeding obvious whenever it comes to their hot topics. Its like certain words immediately activate “lefty rhetoric” or “vitriolic response” portions of their brain and they can’t stop themselves. Mind you, Combet is probably one of their best operators normally, eh?


  9. i don’t think the ACTU would have expected inflation to be quite as high as it’s been. the last 2 figures have been pretty bloody high, and would have eaten into the margin that the ACTU would have put into the ambit claim.


  10. Well judging by the goodies that Howard is handing out to the rural sector (in the last week, $915 million in drought assistance, and another $41 million to the handful of bloody tobaccy growers – as if the Queensland and Vic Governments haven’t given the buggers enough over the years) the PM is in election mode already. Through that prism, he wold probably regard it as a good thing.


  11. This directly goes against the Government submission which in essence says according to its modelling this will create x many unemployed.

    If it were the previous Organisation they would decry the decision. Politics means they applaud it.

    If minimum wages were too high before then they still are.

    Strange decision for Harps to have made and a bad decision to have made.


  12. Every Opposition tries to portray any development as a slap in the face for the government. James Simpson is right, a potential gain for Labor’s base and a carrot to woo “Howard’s battlers” has become just another boring salvo in the political argy-bargy.

    Far more interesting is the use of immigration as a means of overcoming skill shortage and persistent underinvestment in skill training, and avoiding wage blowouts among skilled workers. Labor are doing their best to whip up a scare campaign without being xenophobic (let alone Hanson-Calwell style racism). Given the immobility of opinions on WorkChoices, this is a political minefield but there are gains for Labor in working out a way across it.


  13. Rafe – the ACTU doesn’t (and nor do I) believe that minimum wage rises automatically boost unemployment. in fact, a minimum wage that creates incentives to move from welfare to work (a carrot rather than a stick) can actually reduce unemployment. so no, i think such a statement would be pretty unlikely, all in all.

    Tom – a fair few – those directly reliant on awards will be affected, with lesser raises granted the further you go up the scale (recognising that you’re more likely to be on a CA).


  14. Far more interesting is the use of immigration as a means of overcoming skill shortage and persistent underinvestment in skill training, and avoiding wage blowouts among skilled workers.

    People often talk about using skilled immigration to overcome the government created ‘skills shortage’. But have they ever thought to give full private property rights to Aborigines and at last utilise the population we already have?

    in fact, a minimum wage that creates incentives to move from welfare to work (a carrot rather than a stick) can actually reduce unemployment.

    Let’s just make the minimum wage $100 an hour then. Since it doesn’t increase unemployment.


  15. Oops, just realised you were referring to the optimal minimum wage as it interacts with the welfare system. That’s even better. Let’s get an economist to work out with exact precision exactly when and where to interfere with the market. That will really work wonders, because economists are really good at predicting how the market will behave. And besides, a government bureaucrat/economist is much better positioned to set wages than individual businesses right?


  16. ‘economists are really good at predicting how the market will behave’

    a pox on both our houses then… either we rely on economists’ predictions of the effect of minimum wage rises on unemployment and go with our respective conclusions on the matter, or we ignore them completely.

    ‘a government bureaucrat/economist is much better positioned to set wages than individual businesses right?’

    government and bureaucrats already determine many aspects of employment agreements which are ‘prohibited content’ – thus ensuring that businesses and their employees are free to choose the content of their agreements only if the government likes what they choose.

    nevertheless, i think the fact that we regulate the minimum wage is still as good an idea as it was a the time of the harvester judgement – from a worker’s point of view, there’s no point in working for a less than subsistence wage, and the choice should never be reduced to ‘work or starve’, because that’s not a choice, that’s slavery where you ‘choose’ your master.


  17. I reckon, as dibo says, that the ACTU was surprised by the rate of inflation – their submission was prepared at the beginning of the year. I also reckon they did not expect the AFPC to take so long to make a decision – they thought the rise should cover only a year, not 18 mths.


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