Economist warns Bill Shorten against ‘overpromising’ on wages

“The politics of this are good, but the economics aren’t nearly as good.”

Mr Shorten announced on Tuesday that a Labor government would legislate to enable the Fair Work Commission to give more weight to cost of living pressures when setting the minimum wage, in a move he says would impact about 1.2 million low-paid workers.

Under the policy, the commission would identify a living wage target in its 2020 annual wage review, then phase in minimum wage increases to reach the target.

Despite selling the policy as a “sensible, measured, consultative” move that would “consult the experts and get everyone around the table”, the Labor leader faced an immediate backlash from employers, who argue it will damage businesses and subvert the commission’s independence.

The Fair Work Act already requires the commission to consider the impact on living standards for low-paid workers, along with factors such as the performance of the economy, the rate of productivity growth and business competitiveness.

Mr Richardson warned against over-promising on wages, saying the strategy held risks for Labor – as it raised expectations, potentially beyond what could be delivered on.

“When I hear Bill Shorten talking about wages, I worry about what the average punter is thinking,” he said.

He questioned the approach of “using the IR system to do the job of the welfare system”, saying the latter should be used to address poverty and that students, pensioners and unemployed Australians were the ones who really needed help.

Australian Industry Group chief executive Innes Willox said Mr Shorten should go “back to the drawing board” and come up with a policy that did not put jobs at risk.

And he questioned how Labor could deliver on its promise to boost low-paid workers’ pay without upending the established system of wage relativities.

An analysis of the classification levels in the Manufacturing Award, which is used as the basis for most awards, highlights how bringing all pay rates in line with a $798.31 living wage – in line with the ACTU’s target 60 per cent of median earnings – could diminish the appeal of earning a trade.

If unskilled labourers had their weekly pay increased from the current $719.20 to $798.31, they would earn just $40 a week less than a skilled tradesman under the award, who currently earns $837.40, giving them a premium of $118.20.

“This would most likely lead to many people leaving the trades, and it would reduce employment opportunities for low-skilled people – such as new workforce entrants,” Mr Willox said.

Labor industrial relations spokesman Brendan O’Connor said that employers, unions and community groups would be consulted over the effects of any wage rises for the lowest paid workers.

“Until recent history the commission had no trouble balancing these twin objectives,” Mr O’Connor said. “We are confident that under the new rules, they will be able to do so again.”

“Remember the award wage will also move in accordance with the annual wage review.”

University of Adelaide Law Professor Andrew Stewart said any change to the minimum wage would flow onto all 2.2 million workers employed on awards.

“If you lift the minimum wage then award rates have to go up as well,” he said.

ACTU secretary Sally McManus welcomed Mr Shorten’s announcement as “an essential and fantastic first step to fixing our broken wages rules”, while industrial relations minister Kelly O’Dwyer dismissed it as “a cruel hoax” that would make it harder for Australians to get and keep a job.

Dana is health and industrial relations reporter for The Sydney Morning Herald and The Age.

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