The Impact of Minimum Wages on Recent Wage Trends

Tomorrow the Australian Bureau of Statistics will release its quarterly Wage Price Index: the most commonly-reported measure of wage growth in Australia’s labour market. Given the importance of public debates about wages and wage policy in the current federal election campaign, this release is timely and politically important.

This briefing note reviews some methodological issues related to the WPI. It also considers recent data confirming the visible impact on the WPI of last year’s strong increase in the national minimum wage.

The minimum wage was increased 3.5% effective 1 July 2018 – the biggest increase since 2010. That large minimum wage increase accounts for virtually all of the modest uptick in the WPI experienced in 2018. In other words, it was active policy (namely, the decision by the Fair Work Commission to boost the minimum wage faster than either overall wages or consumer prices), not a reflection of underlying “market forces,” that explains why this indicator of wage growth slightly improved. Without that increase in the minimum wage, overall wage growth would remain below 2%.

This perspective should be considered when interpreting tomorrow’s release of new WPI data.

Please see the full report, The Importance of Minimum Wages to Recent Australian Wage Trends, by Dr. Jim Stanford.


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