Aust minimum wage/award increase should be handed down soon.
Expected minimum wage increase to support, rather than boost, wage inflation.
We must be getting close to an announcement from the Fair Work Commission on the 2023 Minimum Wage/Awards decision. While there is no formal timeline or announcement date, as noted by the Fair Work Ombudsman, the increase is applied from the 1st of July so an announcement is expected to be handed down in June.
Every year, the Fair Work Commission’s (FWC) Expert Panels review the minimum wages received by employees in the national workplace relations system.
The review considers:
- written submissions from interested organisations and individuals
- consultations before the Expert Panels
- research commissioned by the Expert Panels
At the conclusion of this review, a national minimum wage order is made which will apply from the first full pay period on or after 1 July each year.
This should not be confused by the four yearly review, which is being conducted currently, which is about the structure of the award system. While this is linked to the wage setting process by defining wage setting arrangements, it is separate of the annual review of the minimum wage from the Fair Work Commission.
Before 2018, the Commission was required to review all modern awards every 4 years. During the review the Commission could make new modern awards, or change (vary) or cancel (revoke) existing modern awards. The 4 yearly review commenced on 1 January 2014. The process was conducted in 3 stages.:
- an initial stage to determine any jurisdictional issues
- an award stage where each award would be reviewed in its own right, and
- a common issues stage dealing with claims that would affect all or most modern awards.
Note: any variation of minimum wages as part of the modern awards review can only be based on work value reasons.
The review is now in its final stages.
The focus here is what positions are covered by an award and what are the relevant minimum conditions for that award. Previous governments had been trying to minimise the coverage of awards while unions have been try to maintain award coverage if not expand it. The unions are also likely to attempt to lock in current above award wages and conditions that are being paid via individual bargaining in a very tight labour market.
As we get closer to June, there is increasing interest in what the minimum wage outcome might look like. Is the current thinking for the Minimum Wage Increase consistent with our forecast of wage inflation, as measured by the Wage Price Index (WPI) hitting 4.1%yr by the end of this year (this forecast incorporate a pickup in the quarterly profile from 1.0% in June to 1.1% in September and 1.2% in December)?
In a recent article in by David Marin-Guzman, it does appear that in the recent Budget 2023 estimates Treasury was working on the basis that the expect rise in the minimum wage would be consistent with a 4%yr inflation rate for the WPI.
“for inflation to drop to 3.25 per cent and for wages to grow to a peak of 4 per cent by the end of June 2024 included “an assumption that broadly proxies your decision last year”.
“Last year, the panel split its decision by awarding a 5.2 per cent increase to 180,000 workers on the lowest minimum wage – in line with inflation at the time – and a $40 a week or at least 4.6 per cent increase for 2.6 million on higher award rates. Treasury representative Ineke Redmond said the budget papers assumed a wage increase in line with the March inflation figure – which it estimated would be 6.9 per cent when drafting the budget – and then “essentially the minimum increase would be 4 per cent and slightly above” for those between the lowest rate and higher award rates.”
So, it appears the Treasury are looking at an increase in the minimum wage of something around 7% (for the 180k on it) and around 4% (or a bit more though it is not stated what a bit is) for the rest on awards (around 2.25 million). The average pay increase from the 2022 minimum wage/award decision was 4.7% based on the 5.2% for the minimum wage while the smallest percentage increase for the rest of 4.6% (it was a fixed dollar increase so the percent increase was naturally lower the higher the pay rate). We guess that the average minimum wage/award increase in 2023 would be something around 4.6% again based on a high of 7% and a low of 4.5%. On this basis wage inflation from the award system will be a constant or steady, rather than increasing, contribution to overall wage inflation.
For our forecast of 4.1%yr in the WPI by end 2023 we have the awards contribution lifting modestly from 0.29ppt to 0.35ppt. Individual arrangement wage inflation appears to be peaking so only a small increase in contribution from 1.93ppt to 2.03ppt. The larger lift is from enterprise bargaining which lifts its contribution from 1.12ppt to 1.74ppt. For now, this is more of “what is a reasonable scenario consistent with our overall wage inflation forecast” than a hard forecast for each wage bargaining sector.
Please note the data used in the following analysis of wage bargaining contributions is in original terms and not seasonally adjusted. Wages in Australia are very seasonal with a significant majority being adjusted in the September quarter which is the start of the Australian financial year.
Using estimate weights for the various bargaining arrangements we can back out a quarterly profile and use this as a basis for forecasting bargaining sector wage outcomes. For now, we have awards annual wage inflation lifting modestly while individual bargaining is holding onto its current peak and thus steady to end 2023. It is enterprise agreements that we expect to see the largest increase in the annual pace of wage inflation.
It is important to remember that if you are paid more than the award this is more likely to be via an individual bargain than a collective agreement. And if you are paid more than the award there is no legal pressure for your employer to lift your pay once an award increase is announced unless the increase in the award takes the award rate of pay to a higher level than what is currently being paid.
From an average quarterly contribution of 0.31ppt in the year to March, we expect the contributions from enterprise bargaining to lift to 0.37ppt in June, 0.49ppt in September and then 0.52ppt in December. We are expecting a very modest adjustment in individual arrangements contributions and given the significant seasonality with the large share of wages rises being paid in the September quarter; we see this contribution moderating from 0.80ppt in September 2022 to 0.77ppt in September 2023. There is a similar pattern for awards/minimum wage with the September contribution lifting from 0.21ppt in September 2022 to 0.24ppt in September 2023.
We would argue that as the labour market starts to slow in the second half of this year it is possible some employers will take the opportunity to bring those employees on above award pay rates back closer to the award thus a moderation in individual bargaining increase is likely – it will all depend on just how tight the labour market is. Our forecast for underutilisation (unemployment and underemployment) to increase from the second half of 2023 is driving our forecast for WPI inflation to peak at 4.1% at the end of 2023 and to then moderate through 2024.
So, while the expected increase in the minimum wage/award is inflationary as it is expected to be very similar to what was granted in 2022 is it not additive, that its contribution is to hold wage inflation around it current pace rather than add to, or suppress, that pace.
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