Bare minimum: unpicking the minimum wage

28 May 2013

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Rob Bray came to ANU after a long career in the Australian Public Service as a policy analyst and researcher. In 2010 he was awarded the Public Service Medal in recognition of his work on poverty and hardship. His current research includes the measurement of well-being and the role of the welfare system and its interelationship with participation.

Australia needs to have a national conversation about the minimum wage, starting with breaking free from the short-term thinking of the annual negotiations, according to the author of a new report from The Australian National University.

The paper, published by the HC Coombs Policy Forum at the ANU Crawford School of Public Policy, presents a comprehensive analysis of the minimum wage over the last 25 years. It finds that while the minimum wage has remained at about the same level, an increase in government support has raised prosperity for the country’s poorest working families.

The report’s author, Mr Rob Bray of the ANU College of Business and Economics, said the country’s economy was a far cry from what it was when the minimum wage was first introduced a century ago, and even where it was in the mid-1980s.

“Over the past 25 years, the Australian Minimum Wage has transformed from the wage for a family to that of a single person. This has been achieved through increasing support to low income families with children,” he said.

“A consequence has been that while the minimum wage has remained at around the same level, the income of a traditional single-breadwinner family with younger children earning the minimum wage would have increased by more than 70 per cent.

“This has dramatically improved family living standards without putting pressure on wages. It is, however, a reform which is coming to an end, and we have to start thinking about the future.”

Mr Bray added that the choices were not easy. Keeping the wage at its current real value will mean that living standards of those who rely on it will fall relative to the rest of the community. While if it rises faster than the productivity of those working in minimum wage roles, then it will likely cost jobs.

The answer, he suggests, requires policymakers to take a long-term perspective on what’s right for the country.

“This is not an issue that can simply be left to annual wage reviews,” said Mr Bray. “Rather, there is a need to think about where we want to be in 20 years’ time, and the other policies we might need to put in place to get there.

“The fact is that many traditional views about the minimum wage simply don’t hold water any more. These days, the traditional single-breadwinner family reliant upon the minimum wage accounts for just 1.1 per cent of couple families with dependent children.

“Additionally, the minimum wage is increasingly playing a complementary role to other earnings. Although 30 per cent of adult minimum wage earners are in the poorest 20 per cent of working households, the balance are spread – with 9 per cent in the richest 20 per cent of households, and 15 per cent in the second richest.”

In the paper, Reflections on the Evolution of the Minimum Wage in Australia: Options for the future, Mr Bray suggests possible pathways for consideration, including the introduction of an earned income tax credit to supplement the earnings of the lower paid.

Mr Bray will officially launch his paper at a public lecture at Crawford School tonight: http://bit.ly/16lm4et

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