Australia's workers on the minimum wage should receive a 3.4% weekly increase given the strong outlook for the economy and inflation being well contained, the nation's workplace relations tribunal ruled today.

In its ruling, the Fair Work Australia body decided on a minimum wage of A$15.51 an hour or A$589.30 a week. This constitutes an increase of $19.40 per week or 51 cents per hour. In 2010, the minimum wage went up A$26 a week.

Varying Proposals

Many groups submitted proposals on the proposed changes to the national minimum wage.

The Australian Council of Trade Unions (ACTU) together with several unions recommended a two-tiered approach of a $28.00 per week increase to the national minimum wage, and a 4.2 per cent increase for award-reliant employees above the C10 level.

Employer groups proposed more modest increases to the national minimum wage and modern awards. The Australian Industry Group (Ai Group) proposed that the national minimum wage and modern awards be increased by $14.00 per week. The Australia Chamber of Commerce and Industry wanted an increase of A$9.50.

Some groups proposed that the minimum wage stay at current levels. The Master Grocers of Australia (MGA) submitted that there should be no increase to minimum wages so as to enable employers to absorb increased costs, retain employment levels and avoid increasing product prices and avoid the serious impact that a wage increase may have on the independent supermarket sector.

Deferral for Disaster Affected Firms Denied

The across-the-board wage increases come at a critical time for certain industries and areas.

A number of parties sought a delay in the operative date of any increase in minimum wages arising from this review on the basis of exceptional circumstances. Most reasons relate to the effect on employers and employees of recent natural disasters, particularly flooding in late 2010 and early 2011 in Queensland, New South Wales and Victoria and Cyclone Yasi.

Fair Work, however, noted that a deferral of a wage increase would place some of the burden of adjustment on the lowest paid in the community, "who might themselves be in a difficult financial position because of the effects of natural disasters on themselves and their families." Fair Work also noted that the Reserve Bank of Australia (RBA) is forecasting that in the second half of 2011 economic activity in Queensland will be boosted by spending on reconstruction.

The ACCI noted that elevated prices for coal and iron ore exports are expected to lead to strong growth in mining investment, which is expected to be one of the key drivers of economic growth over the coming year. At the same time, higher prices for key commodity exports have led the Australian dollar to appreciate sharply, placing enormous pressure on other trade-exposed sectors of the economy.

Australia's workforce is pushing close to full capacity with an unemployment rate of just 4.9%. Some employers in mining areas struggle to find labor. The Housing Industry Association submitted that there was a shortage of skilled labour across a majority of trades in the residential sector, while Business SA also referred to skill shortages, particularly in the mining and construction sectors. Business SA said the skill shortages are pushing wages up unsustainably in some of these areas and there are concerns such increases will flow through to other parts of the economy that can least afford them.

The South Australian Government noted that high commodity prices and the appreciation of the Australian dollar have created difficulties in a number of trade exposed industries which will persist for some time.

Economically responsible and fair

"Labour productivity is growing, the profit share remains at historically high levels and underlying inflation is well within the RBA's medium-term target band. Employment is growing, unemployment is reducing and labour force participation remains high. In the circumstances a significant increase is appropriate which will improve the real value of award wages and assist the living standards of the low paid," Work Force said in its decision providing for a nationwide 3.4% increase.

A number of submissions noted that global economic conditions have continued to improve after the global financial crisis. Solid economic growth was achieved despite the continued withdrawal of stimulus, the high Australian dollar, heavy rains in the eastern states and further evidence that households are taking a more cautious approach to their finances.

In its ruling, the tribunal considered that annual inflation throughout most of 2010 had been well contained within the Reserve Bank of Australia's (RBA) medium-term target band, due to the lower growth in consumer demand and the appreciation of the Australian dollar.

The 3.4% weekly increase above headline inflation. The CPI at March 2010 to March 2011 was 3.3%.

"Labor productivity is growing, the profit share remains at historically high levels and underlying inflation is well within the (Reserve Bank of Australia's) medium-term target band," Fair Work said in its judgement.

Annual growth in real Gross Domestic Product (GDP) rose by 2.7 per cent over the year to the December quarter 2010. Pushed by the construction, professional, scientific and technical services industries and financial and insurance services industries, growth occurred notwithstanding some adverse impact of extreme weather conditions in December 2010 and the withdrawal of the fiscal stimulus from the March quarter 2010.

"More broadly, the Australian economy is in a strong position and the outlook is favourable, with above-trend real GDP growth forecast over the next two years," the Treasury said.