Wage boost call ‘costly’
Hike would hit inflation: critics
WAGE hikes backed by Opposition Leader Anthony Albanese risk fuelling inflation and further adding to household cost-of-living pressures, economists say.
Mr Albanese on Tuesday declared the minimum wage should “absolutely” increase by at least Australia’s current inflation level of 5.1 per cent, prompting Prime Minister Scott Morrison to accuse him of “making things up on the run about what he thinks wages should be”.
Independent Tasmanian economist Saul Eslake said wages growth beyond inflation, without productivity increases above the current sluggish 0.5 per cent annual rate, risked fuelling inflation or adding to unemployment if businesses could not afford to pay people more.
“Wages growth in excess of productivity pushes up what we call unit labour costs,” he said. “That is labour costs per dollar value of output.
“That can only have two consequences. One, it will add to inflationary pressures, if demand is sufficiently strong that businesses can pass those cost increases on.
“Alternatively, it will come at the expense of profits if businesses can’t pass the cost increase on and that may result in higher unemployment.”
Mr Eslake said increased inflation was the most likely scenario, because demand was strong and consumer spending was forecast to grow by 5 per cent or more this year in real terms.
But he predicted inflation was likely to start falling because price hikes for consumer goods globally had peaked and shipping costs had started to go down as Covid-induced supply chain issues waned.
Mr Eslake said wages would likely start picking up gradually, as they have in the US and UK, as unemployment reduced below 4 per cent.
Australian Industry Group chief executive Innes Willox said union calls for minimum wage rises of more than 5 per cent were unsustainable and risked economic damage.
“In the current circumstances, there is a clear risk that a high increase in wages without improved workplace productivity would fuel inflation and increase the likelihood of a steeper rise in interest rates to the detriment of growth and job creation,” Mr Willox said.
A central pillar of Labor’s election campaign has been the promise that its policies will lift wages.
Mr Albanese refused to say whether or not he supported the ACTU’s push for a 5.5 per cent increase – in which the hourly minimum wage would go from $20.33 to $21.45 – saying instead that workers “shouldn’t go backward”.
Asked later if he supported the minimum wage increasing by 5.1 per cent, Mr Albanese said “absolutely”.
The Prime Minister criticised Mr Albanese for suddenly backing a 5.1 per cent rise to the minimum wage, which covers an estimated 2.2m workers.