Wages rise but sorry, you’re probably still going backwards

 In Home News Section, Home Slider Section, Uncategorized

The maths is simple, brutal.

Wages aren’t rising as much as the cost of essential items — like food, fuel and housing.

The surging cost of these so-called “non-discretionary” items I call the “unavoidables” means average workers and people receiving welfare support are going backwards.

The minimum and award wage decision — pushing wages 5.75 per cent higher from next month for millions of workers — just means you’ll be going backwards more slowly.

Unions wanted it higher. Business groups wanted it lower. The Fair Work Commission made its call.

The bump is some compensation as you rack up your purchases at the check-out and realise you’ve been unwittingly drafted into the biggest political and economic fight of our age: who is to blame for inflation?

Is it … you, wage earner?

First, the lift

The national minimum wage will now be $882.80 per week or $23.23 per hour.

But only a very small group of workers (0.7 per cent of the workforce or less than 200,000 people) on the lowest minimum wage of $21.38 an hour will see that 8.6 per cent pay jump.

These workers, mainly women, are doing it tough. Almost 20 per cent of them have a long-term disability or impairment, more than half of them are casual and 80 per cent are under-employed — wanting more hours.

The bigger group (20.5 per cent of workers, or around 2.5 million people) on awards will see a 5.75 per cent rise from their current pay rates.

Awards are legal agreements that cover things like pay, overtime rates and conditions for certain industries, like hospitality.

But this week, new data showed prices rose 6.8 per cent for the year to April. The consumer price index (CPI) measures a basket of goods. The biggest jumps were in housing (8.9 per cent), food and non-alcoholic beverages (7.9 per cent) and transport (7.1 per cent).

You’ll note that all of these are more than 5.75 per cent, which is why even this bump won’t get you ahead — just not going backwards as fast.

Blame Putin?

The Russian invasion of Ukraine has caused untold misery in the region.

There were economic impacts too, notably a soaring price for fuel. One of the things you might have missed in the year-long horror is the rocketing price of fertiliser — also a big product from the region.

It’s a key ingredient in the production of food and it’s one of those levers that started pushing prices up. Others followed — like building materials, made worse by COVID-related supply bottlenecks around the globe.

Inflation started to ramp up.

So central banks around the world started to lift interest rates to deal with inflation — trying to take money out of the economy.

This has slammed the more than one-third of Australians with home loans and, down the track, the one-third who rent (because many of the homes are secured by mortgages, and their landlords are facing increasing repayments).

Is it you?

So a key political and economic fight has been how to get inflation down from its current position near 7 per cent a year to the Reserve Bank’s “target band” of between 2 and 3 per cent.

Governor Philip Lowe was grilled in the Senate about whether the federal government’s recent budget was making things worse or better.

“I don’t think that the budget is adding to inflation, it’s actually reducing inflation,” he declared.

Specifically, intervention in the energy market and helping vulnerable people with bills are expected to lower inflation by 0.75 per cent.

Our central bank governor was pretty even about the impact. Increasing welfare payments like JobSeeker was “mildly expansionary”, but letting bracket creep work its wonders by taxing workers more as their wages rise would be “mildly contractionary”.

Now that argument is being applied to wages.

Is it profits?

For a long time, the RBA talked about a “wage-price spiral”. It happened in the 1970s, when rising prices forced wages up, which then led companies to charge higher prices to cover the costs, which then led workers to … you get the gist.

But the way wages went up back then, what’s known as “wage setting”, has changed vastly.

Gone are massive heavily-unionised manufacturers employing thousands.

Now in place are complex laws that severely limit strike action and discourage collective action.

Also in, a gig economy and a precariat workforce creating a pool of labour with poor bargaining power and a propensity to exploitation. That’s helped keep wage growth down. Way down.

The RBA has kept forecasting (hoping?) that wage growth was coming.

And, like Godot, until very recently it hadn’t arrived.

Meanwhile, rocketing corporate profits are arguably one major contributor to inflation’s rise above the target.

That’s something the Reserve Bank disputes, but it did start labelling the threat a “price-wage spiral”, signalling either some understanding that profit-gouging was pumping up inflation or that workers didn’t really appreciate their living standards racing backwards and being blamed for that inflation at the same time.

More to come

The increased minimum wage will kick in at the start of next month.

Also happening is a tight labour market, also known as a worker shortage. That means it’s easier to get a job or shift to a new one — giving an incentive to employers to pay more to both new and existing staff.

And there’s more change to come. One of the government’s election promises was to put “gender equality” at the heart of employment laws.

The upshot of that is that next year’s minimum wage decision will take into account “the associated issue of potential gender undervaluation”.

In non-legal language, that means: “Women in the caring professions getting paid less than similarly qualified and experienced men in other professions.”

So it isn’t a factor here, but the Commission is researching the problem and that will “underpin the consideration and determination” in next year’s decision.

On top of a massive bump to the pay of aged care workers, off the back of the royal commission, we might finally see some shift in the stubbornly low wage rises enjoyed by workers doing some of the toughest — and most poorly paid — work in the “on-the-books economy” of people paid legally.

By business reporter Daniel Ziffer (Original ABC Article)