The analysis, The Irrelevance of Minimum Wages to Future Inflation, examines the correlation between minimum wage increases and inflation going back to 1997.

It finds that, contrary to employer concerns, there is no consistent link between minimum wage increases and inflation in the modern Australian context.

The report finds that a minimum wage rise of between five and 10 per cent in the Fair Work’s Annual Wage Review, due in June, is needed to restore the real buying power of low-paid workers to pre-pandemic trends, but would not significantly affect headline inflation.

Key points:

• Last year’s decision, which lifted the minimum wage by 8.65 per cent and other award wages by 5.75 per cent, offset some but not all of the effects of recent inflation on real earnings for low-wage workers.
• At the same time, inflation fell by 3 full percentage points.
• There has been no significant correlation between rises in the minimum wage and inflation since 1997.
• Raising wages by 5 to 10 per cent this year would offset recent inflation and restore the pre-pandemic trend in real wages for award-covered workers.
• Even if fully passed on by employers, higher award wages would have no significant impact on economy-wide prices.
• A 10 per cent increase in award wages could be fully offset, with no impact on prices at all, by just a 2 per cent reduction in corporate profits – still leaving profits far above historical levels.

“Australia’s lowest paid workers have been hardest hit by inflation since Covid. There is a moral imperative to restore quality of life for these Australians and this analysis shows that there is no credible economic reason to deny them,” Australia Institute and Centre for Future Work Chief Economist Greg Jericho said.

“It’s vital the Fair Work Commission ensure that the minimum wage not only keeps up with inflation, but also grows gradually in real terms – as was the trend before the pandemic.

“Whenever wages go up, the business lobby cries wolf, claiming it will cost people their jobs, shutter businesses and stifle competition.

“The business lobby always has some reason that wages should be suppressed. But the historical data prove that concerns about inflation are not a credible excuse to deny low-paid workers a much-needed pay rise.

“Even if businesses respond to minimum wage rises by charging consumers more, it would have a minuscule effect on inflation because it would be subsumed by much larger factors including chain disruptions, energy shocks, and corporate profits.”

Key points:

• The Australia Institute and its Centre for Future Work, which were among the first to identify the role of record-high corporate profits in driving the acceleration of inflation after the COVID lockdowns, made a major submission to the Fels inquiry and appeared before its public hearing in Melbourne in September 2023
• A 2023 Centre for Future Work report showed that over two-thirds of excess economy-wide inflation (above the RBA’s 2.5% target) from end-2019 through the September quarter of 2022 was attributable to higher unit corporate profits.
• Australia Institute reports documented that the rise in profits was strongest in industries with concentrated or strategic power in the broader economy: including mining and energy, manufacturing, construction and wholesale trade.

“Prof Fels’ careful review confirms that price-setting strategies by corporations, including many obviously unfair and exploitative practices, have contributed significantly to the cost-of-living crisis afflicting Australian households,” said Greg Jericho, Chief Economist for the Australia Institute.

“Since the current inflationary cycle began after COVID lockdowns, there has been too much attention on wages, labour costs, and consumer spending as the supposed drivers of higher prices. The RBA and other policy-makers have been too slow to acknowledge the role of profit and greed in pushing up prices.

“This inquiry marshals abundant evidence from official statistical agencies, international economic organisations, think tanks and academic research to show that corporations have taken advantage of the pandemic and its aftermath to exploit consumers and drive up inflation.

“Prof Fels’ report contributes to a more accurate understanding of what is causing the cost-of-living crisis, and a more balanced and fair strategy for solving it.”

“Australian corporate profits have moderated in the last year, as supply chains were repaired and energy prices retreated. This has been crucial to the partial slowdown in inflation experienced in the same time.

“But further reductions in prices for many essential goods and services are required to fully repair living standards, and Prof Fels’ recommendations for more exposure of excess prices and stronger competition measures to reduce them would help a lot.”

The Centre for Future Work’s Carmichael Centre study shows that self-employment is both shrinking and becoming more precarious.

Over the past decade, there were 112,000 fewer employers, 35,000 more part-time solo self-employed, and 91,000 fewer full-time solo self-employed than there would have been if their shares of total employment had remained unchanged.

“Contrary to some predictions, self-employment has not taken over the world – but the nature of what self-employment means has changed,” said David Peetz, research fellow and author of Self Employment Myths & Realities.

“Self-employment is in decline, not just in Australia but overseas.

“The only thing that’s growing in the self-employment area is part-time, solo self-employment.  A lot of that is ‘gig’ work.  It’s insecure, the pay is poor, it’s sometimes even dangerous.

“The nature of what self-employment means has changed. For someone wanting to be their own boss, it’s a lot harder these days to get a small business into markets. Big firms aren’t keen to let them in. They’re a lot happier to just hire a contractor to do short gigs for them.

“There’s a lot of barriers to start-ups, but there’s no barriers to how many delivery drivers rely on three different apps to make ends meet.

“This has left many self-employed workers exposed to poorly regulated or non-existent workplace standards.”

The report shows standards and protections can be set for gig workers. This can be done in ways that these workers actually want, without getting in the way of the genuine innovators among the self-employed.

“The second tranche of the government’s Closing Loopholes Bill puts a floor on gig work standards and is vital to protect livelihoods and the economy,” Professor Peetz said.

“Workers want the flexibility that comes with self-employment, but they also want and deserve to be protected.

“The protections in the government’s Closing Loopholes Bill, returning to parliament next year, strike the right balance between protecting the right to choose self-employment and stamping out exploitation of vulnerable workers.”

The Journal of Australian Political Economy, a peer-reviewed journal based at the University of Sydney, has today published a special issue evaluating the record of the Albanese government during the first half of its term in office.

The special issue features 19 articles reviewing various aspects of the government’s legislative and policy agenda since its election in May 2022. Topics covered include economic and monetary policy, labour issues, energy and climate, foreign policy (including the AUKUS treaty), and the Voice referendum.

The special issue was edited by Professor Emeritus Frank Stilwell of the University of Sydney’s Department of Political Economy.

All articles included are available open-access here.

“The midpoint of the current federal Labor government’s term of office is a good time to take stock and assess its performance,” said Professor Stilwell.

“The mixture of the government’s accomplishments, and its continuing policy and political challenges, show the tensions as well as the possibilities when the Labor party is at the helm of the ship of state.”

“One topic that continues to bedevil the government is its plan to move ahead with Stage 3 tax cuts, despite criticisms that they will widen income inequality in Australia and add to inflationary pressures,” said David Richardson, Senior Researcher at the Australia Institute and co-author of the special issue’s review of tax policies.

“The Stage 3 cuts are massively regressive, and the government should instead focus its tax reform efforts on developing a fairer system for taxing capital gains.

“Since the ratio of wealth to income is predicted to double in the next 40 years, Australia urgently needs to ensure the owners of wealth make a fair contribution to the costs of a decent society,” Richardson concluded.

“The government deserves positive grades for measures taken to strengthen collective bargaining and boost wage growth,” said Jim Stanford, Director of the Centre for Future Work and a co-author of the special issue’s article on labour policy.

“While more labour reforms are needed, the government has made significant strides toward a better balance between workers and employers, and revitalising long-stagnant wage growth,” Stanford added.

Five of the articles in the special issue reflect contributions from staff and associates of the Australia Institute, including:

• Labour Policy: co-authored by five staff members of the Institute’s Centre for Future Work.
• Tax Policy: co-authored by Prof Stilwell and David Richardson, Senior Researcher at the Australia Institute.
• Care Policy: authored by Dr Fiona Macdonald, Policy Director for the Centre for Future Work.
• Energy Policy: co-authored by Dr Matthew Ryan, Post-Doctoral Fellow at the Australia Institute, and Prof Stuart Rosewarne of the University of Sydney.
• Monetary Policy: authored by Dr Mike Beggs of the University of Sydney, and Associate of the Centre for Future Work.

That’s the finding of the Australia Institute’s 2023 report, Short Changed, tracking annual work hours and unpaid overtime for Go Home On Time Day on November 22. It has also found the average worker is losing out on $11,055 a year, or $425 a fortnight, to unpaid overtime.

Key findings:

The Australia Institute surveyed 1,640 people between August 29 and September 6. Of those, 61% were in paid work. 

• Employees reported doing an average of 5.4 hours of unpaid work a week overall
  • Full-time employees perform an average of 6.2 hours, and casuals or part-timers four hours
  • Workers aged 18 to 29 do the most unpaid overtime (7.4 hours) a week
• This ‘time theft’ equates to 281 hours a year or seven standard 38-hour weeks spent working for free
• Australian employees are losing a cumulative $131 billion to unpaid work a year
• Nearly half (46%) are not satisfied with the amount of paid work they’re doing and either want more or fewer hours:
  • A third of all workers want more paid hours (35%), but this rises to 54% for under-30s
  • Half of casuals (49%) of two in five part-timers (40%) would like more paid hours
  • Another 11% of all workers would like fewer paid hours

“This survey shows just how uneven the labour market is. We’ve got many workers, especially casuals in insecure jobs, wanting more hours. At the same time, employers are more likely to demand long hours, including large amounts of unpaid overtime, from full-time workers,” Dr Fiona Macdonald, Policy Director, Industrial and Social at the Centre for Future Work said.

“Record-low unemployment should have pushed both satisfaction with working hours and paid hours higher as employers scrambled to fill labour shortages. Instead, ‘time theft’ has actually blown out by 57 hours per worker since 2022 and has returned to near pandemic-era levels.

“This dispels simplistic arguments that workers have the upper hand on employers because of recent industrial relations reforms. In fact, we’ve seen workers agree to more hours due to the cost of living crunch. Perversely, this has resulted in employees giving their bosses a free kick because many of those hours end up being unpaid.

“Providing more protections for workers in these insecure positions, as proposed in the Closing Loopholes legislation currently before parliament, is an important priority for improving Australian labour market outcomes.”

Visit Go Home On Time Day 2023 to read more and use our online calculator to work out your unpaid overtime.

Despite inflation peaking, workers are still struggling to recoup wages growth lost during the pandemic and subsequent cost-of-living crisis.

Centre for Future Work director Dr Jim Stanford and Australia Institute Chief Economist Greg Jericho will today (Thursday) give evidence to the Australian Council of Trade Unions’ Price Gouging Inquiry, headed by Dr Allan Fels, about the true cost of record post-pandemic corporate profits to workers.

A new report, Profit-Price Inflation: Theory, International Evidence, and Policy finds that corporate profits still account for the clear majority of cumulative excess inflation since the pandemic hit.

Key points:

• Corporate profits in Australia have fallen modestly in recent months, coinciding with a partial slowing of inflation, but remain well above historical norms and account for the clear majority of inflation since the pandemic.
• Real wages have fallen by an average of 6% since mid-2021, the fastest and largest decline in the post-war era.

To curb profit-led inflation, Profit-Price Inflation is calling for key measures, including:

• Price regulations across strategic sectors such as energy, housing, and transport
• Competition policy reforms to restrain exploitive pricing practices by powerful large firms
• Support for wage increases above inflation for a sustained period, to repair recent real wage reductions.

“The evidence couldn’t be any clearer: enormous corporate profits fuelled the inflationary crisis and remain too high for workers to claw back wage losses,” said Dr Jim Stanford, Director at the Centre for Future Work.

“Real wages in Australia saw the largest and fastest fall since the Second World War, yet the usual suspects in the business community want to blame labour costs for inflation.

“That claim simply doesn’t stack up under the weight of international and domestic evidence that shows corporate profits still account for the clear majority of excess inflation, despite inflation moderating from its peak last year.

“Profits have fallen modestly, but this trend must continue in order to repair real wages while further reducing inflation.

“Our research being presented to the Price-Gouging Inquiry also debunks the myth that you can carve out eye-watering mining profits from an analysis of inflation.

“There is abundant Australian and international research confirming that companies in many industries, not just mining, were able to increase prices far above their costs, fuelling the surging inflation that rippled through the economy and now threatens it with high interest rates and possible recession .”