Managing wages growth is a critical business issue, and requires a raft of policy settings to be correct.
Up until the late 1980s, one of the major annual events for the Australian economy was the national wage case before the Australian Conciliation and Arbitration Commission.
With a highly centralised wage-fixing system, the increase set by the commission flowed through automatically to the vast majority of workers.
The Australian Council of Trade Unions invariably led the argument for large wage increases while the old Confederation of Australian Industry almost invariably argued for no increases.
The government of the day was often the swing factor that determined the commission’s decision.
The Hawke Labor government changed the rules of the game when it moved to a more decentralised wage-setting system in the mid to late 1980s, with a greater focus on collective bargaining.
The Howard government extended that trend, moving to a system where unions had a diminishing role and workplace productivity was the main driver of wage increases.
The trend toward labour market deregulation culminated in the introduction of the highly contentious Work Choices system, which unsettled many Australians and is widely considered to be one of the main reasons the coalition lost power in Canberra. With Labor back in power and the roll back of Work Choices proceeding, some of the habits of old are starting to reappear.
The central wage-fixing body, which has been through several name changes and is now called Fair Work Australia, is evaluating submissions for a review of the minimum wage.
The outcome of this matter will be far less sweeping than the old national wage cases, which automatically flowed through to the workforce.
Nonetheless, the increase in the minimum wage will apply to many workers, particularly in service industries such as retail, hospitality and restaurants, and is bound to become a benchmark for unions seeking wage increases for their own members.
Currently about 15 per cent of Australian workers have their wage set by award only, so they will be most directly affected.
Most workers have their wage set by a collective agreement (43 per cent) or by an individual agreement (37 per cent).
In the 2009-10 minimum wage case, Fair Work Australia determined an increase of $26 a week to $569.90 a week, equivalent to just under $30,000 a year.
This year, a seven-member panel, led by Justice Geoffrey Giudice, is working its way through numerous submissions, from groups including the ACTU, the Australian Council of Social Service, and employer associations.
The unions are seeking an increase of $28 a week up to the “base trade rate” of $663.60 a week and 4.2 per cent for all award wage rates above that.
Employer groups are arguing for a lesser increase. The Australian Chamber of Commerce and Industry has argued for a flat increase of $9.50 a week, while the Australian Industry Group has argued for a $14 increase.
The Chamber of Commerce and Industry WA has argued for an increase of $12 up to the trade base rate and $10 a week for all award rates above that.
All of the employer groups noted that the Australian economy had emerged from the global financial crisis but its performance was highly variable across industries and regions, which would affect the capacity of many businesses to absorb higher labour costs.
The irony of this situation is that, with a two-speed economy, there are many businesses that face the opposite problem; they are forced to increase their wage rates and offer improved working conditions just to keep staff who might otherwise be tempted by high-paying jobs in the resources sector.
This group of employers would be helped by policies that create a more flexible labour supply.
Boosting training and getting the long-term unemployed into work – which has become a major focus for the federal government – is one part of the solution.
But it remains abundantly clear that a more responsive and flexible migration system is also needed to meet the needs of Australian business.
There has been modest progress on this front, but governments in Australia are yet to properly embrace migration as a valuable policy lever that sits alongside fiscal and monetary policy.