From “minimum wage” to “living wage” means what?

The Australian Labor Party has announced that, if and when elected, it intends to change the Fair Work Commission’s annual wage review process to deliver a “living wage” – what people need to earn to have a reasonable prospect of not living in poverty.

So what does that all mean?

It will mean that the quantum of annual wage increases will go up in the transition period, something that Labor says they will ask the Fair Work Commission to consider. Essentially this question amounts to how long that transition should be, taking into account a number of factors including affordability for businesses.

How long might that be?

We have had a bit of a hint from the ACTU in their claim to this year’s Annual Wage Review – they have asked for 10.7% over two years. This is significant because the history has been that claims have been made on a year by year basis with no forward projection.

There have been a variety of issues such as the transition to modern awards and variations to penalty rates in which the Fair Work Commission has decided to transition changes in stages, generally over three to four years.

No doubt, a Labor Government would want the transition completed during its term of office so that it can say that it delivered on that promise at the next election.

Given all of the above, our guess is that it will be two to three years.

How much will it be?

Last year, the increase was 3.5% and it was 3.3% in the previous year.

In making those decisions, the Fair Work Commission also noted that those on the lowest rungs of award wages remained at risk of poverty.

Logically, if those people are to be given a living wage, the increases will need to be larger than they have been.

The ACTU’s claim of 10.7% over two years is quite modest compared to their claims in recent years.

So what should you expect – probably in the range of 4% to 5% in each of the next two to three years.

Will they flow on to award rates?

Some of the reporting on this issue has claimed that Labor has said that increases resultant from the transition from a minimum wage to a living wage will not automatically flow on to award wages.

We don’t see how that flow on can be avoided for the simple reason that the minimum rate for the lowest classification in many awards is in fact the national minimum wage. You couldn’t have an award safety net that provided less than the national minimum or living wage.

Then to maintain the relativities in classification structures in modern awards, you would have to flow on the increases just as has happened year on year in annual wage reviews.

So we should be expecting that to happen.

Now let’s just wait and see what happens at the election and beyond.

Note: this article does not constitute professional advice and it is simply the personal opinion of the author based on the available evidence and is designed to provide some balanced and reasoned information for people to think about.