Wage increases in the real world: an honest discussion

Last week’s Annual Wage Review (AWR) lifted the National Minimum Wage (NMW) by $40 per week, which is 5.2%. The minimum wages in our industrial awards went up by $40 in the lower pay levels and then by 4.6% from the lower mid-levels upwards.

Of course, there was the usual chorus of general whingeing against pay rises from the employer organisations and their cheerleaders in mainstream media. Some mainstream media commentary was somewhat better than that. But the $40 was the centre of it all.

All of the discussion focussed on the pre-tax value of the increase, including that from the ACTU and some of its unions.

This is misleading, especially if you are fair dinkum concerned about the impact of price increases on the real-world standard of living for the low-paid.

The real-world spending power of the increases

In the real world, workers on low wages, not just the NMW, pay for their necessities with the after-tax wage. That is how they buy the food and water, clothing, shelter and other necessities to reproduce their lives day by day, week by week.

Sometimes they are also paying, with that after-tax wage, for those family members or friends who are unemployed or underemployed or on youth wages, or otherwise on very low incomes.

It’s the after-tax value of any pay rises or cuts that determine the standard of living for low-wage workers and those who, to some degree or another, depend upon them.

In the world of the AWR and its protagonists (Commissioners, unions, employers and a few others) it is “economists at ten paces” and, for most of them, the “real world” of the low-paid is far away in money terms.

The majority of low-wage workers are women. And many of these workers were at the front line in the early months of the covid pandemic, and still are.

The after-tax impact on the necessity-driven spending power of low-income workers does not seem to feature in major submissions to the Review and in the FWCs final decision. In what way does this make sense?

So what is the real-world impact of the Fair Work Commission (FWC) decision?

For NMW workers the increase is 81 cents and bit per hour. In the real world that’s a 4.5% increase against CPI at 5.1%, and heading for 7% during the period that the increase will apply. Keep in mind also that hospitality and some tourism transport workers will not get their increases until October.

The increase for other low-paid workers depends on the rates in the industry award that covers their industry or occupation.

For example, I take the “Manufacturing and Associated Industries Award” because the FWC still uses the tradesperson’s rate (called the C10 rate) in that award as a benchmark for some aspects of its decision.

For low-paid manufacturing workers below the FWC cut-off point, the real world increase is 2.4% and 2.2%, and, of course, less than the $40 before tax.

For manufacturing workers at the base tradesperson’s rate, the real world increase is 3.45%, and marginally better than that for most of the classifications above that.

The outcome reflects the balance of power

Overall, relative to prices, the standard of living for low-income workers has not been rescued by the FWC’s decision.

Nevertheless, the outcome is much better than the employers’ claims and much better because of the ACTU’s vigorous advocacy in the consultation process dictated by the broken rules of the Fair Work Act 2009 (FWA09).

The ACTU’s decision to increase its claim mid-Review from 5% to 5.5% (pre-tax) was correct in principle but still well below what is needed to match the real world wages (after-tax) needed to match profit-led inflation.

The new Labor government’s submission also helped to push the FWC to a higher outcome than would otherwise have been the case. Also, it helped to push into public view the big issues at stake in the AWR.

However, they also support the Reserve Bank’s interest rate rise strategy that will tend to reverse the impact of the wage increases for the low-paid, and other workers who are not so defined.

And, above all, the union movement did not run a serious civil or industrial campaign in support of its submission. Low-paid workers were not consulted about what the claim should have been nor mobilised to show their support for it. Neither did they push for that to happen.

The next Review and how it is being shaped

All of these issues will be there still when the next Review gets underway in November-December (thereabouts) this year.

They will be alive in the lead-up to the Employment Summit to be held, probably, in September, and also in Labor’s first Budget (October).

And, by that time, we will be clearer about how serious the emerging economic downturn (recession?) will be?

Already, the government is clarifying that its “CPI matching” endorsement is a one-off; and Tony Burke, Labor’s employment minister, is already talking about an alternative and lower measure of inflation than the CPI. The FWC also makes a point about this lower measure in its decision.

This decision, both the specific increases and the arguments to justify them, is loaded with the usual anti-worker tricks that the so-called “independent umpire” has got up to since it was formed over a hundred years ago.

Will the new government take on and fix the broken rules in the FWA09 between now and then? On balance, probably not, although it might strengthen the powers of the Commission to take more decisive action about closing the pay equity gap in AWRs.

Democratic ideas for a real campaign?

Assuming minimal change to the wage-fixing laws for now, what should be the union movement’s response?

4 ideas spring to mind for the next 6 months.

1. Load up lots of working-class education about why and how the current minimum wage system works and is stacked against us, especially how it shapes enterprise bargaining outcomes;

2. Load up the spread to non-union and union workers of learning about how to read the paycheck and measure it against the new minimum rates, and create public disputes about the wage theft that will surely follow the decision;

3. Look for specific low-paid gains on the social wage in Labor’s first budget;

4. Take the first step to prepare for next year’s review: develop a mechanism that enables tens of thousands of low-paid workers to have their say about what the claim should be for next year. This is a novel idea, for technocratic unionism, that defies current compliance with the rules and starts the shift about minimum wage decision-making out of the hands of employers, economists and the “Fair Work Club”, back towards workers themselves. They could be presented with 3 options: a modest claim that accepts that workers should help pay for hard economic times; a middle-of-the-road claim that helps workers to maintain living standards or close to it; a bigger claim that pushes them to maintain and catch up on living standards and rejects the claim that workers must pay for another stall or breakdown in the economy.

All of this can be done while marginalising and at every opportunity smashing employer arguments for profit protection and their mates in the LNP. Sally McManus' line about "profit-led inflation" is both true and a good example of what is needed.

This leaves begging a longer-term strategy on wages, and in general, that builds even stronger momentum for new, well-paid, safe and skilled jobs in the renewables transition.

"No one left behind."