Wages decision a ‘kick in the guts’ for the most vulnerable workers

The other day - on July 7 - the final act of Australia’s so-called “Fair Pay Commission” left a bitter aftertaste for many.

The Commission has decided not to raise the minimum wage rate above its current level of just under $544 a week (an hourly rate at $14.31), with a consequence that, due to inflation, the value of wages has fallen in real terms.

According to the ACTU, “the average award worker will lose about $16 a week until the next wage decision is due in July 2010”.

ABC News reported that “around 1.3 million” people will be affected, and that both unions and the government were “disappointed”.

Employers had argued that a “$3-a-week increase in disposable incomes through … proposed tax cut[s]” would compensate workers for the wage freeze. ACTU President Sharan Burrow, responded by labelling such claims "nonsense and insulting".

Continuing, Burrow argued that the shift would “certainly cost jobs if [we] see wage deflation in Australia”.

Burrow, here, is arguing on solid ground. Wage cuts which attack the disposable income of workers are bound to have a negative impact on aggregate demand and consumer confidence. This in turn would certainly cost jobs.

Meanwhile, Frank Quinlan of Catholic Services Australia's has identified the reasoning of the Fair Pay Commission as being inconsistent and hypocritical:

On the one hand they have argued that when there is inflationary pressure, low paid workers wages need to be controlled. On the other hand they have argued that when there is recessionary pressure, low paid workers wages need to be controlled. So it is very difficult for me to understand the circumstances under which this Fair Pay Commission would actually deem it fair to increase low paid workers wages.

Australia’s most vulnerable workers should not be made to “bear the burden” of the response to the recession. Here we refer to cleaners, child care workers, retail workers, hospitality workers, call centre workers and others.

Arguments for suppressing these people’s wages are just another take on the discredited idea that labour markets should always be flexible downwards in order to “clear”.

This idea - to clarify - holds that wages should be driven down by market forces (to reach “equilibrium”) and that the alternative to this is unemployment. Against this it could be argued that there are many areas - for instance cleaning - where demand would hold steady regardless of fair wage standards. Another argument is that fair wage standards would not impact negatively on overall demand but rather on wealth distribution and patterns of consumption.