Michael Pascoe: No, the wage case shouldn’t panic the RBA

Few issues are extra predictable than the standard enterprise foyer suspects warning that life as we all know it’ll finish if wages aren’t suppressed.

Ditto the response when the Truthful Work Fee (FWC) delivers a much bigger wage rise than the final one – although it’s not by a lot.

Typical was the Australian Monetary Overview’s fast headline: “Minimal wage resolution cements case for extra charge rises”, with a few economists capturing from the lip.

Er, no, it doesn’t. That ought to be apparent to anybody who truly studied the FWC’s announcement.

The FWC doesn’t wish to flip the present charge of wage will increase – which have been repeatedly described by the RBA as acceptable, as in line with its inflation goal – into one thing that may scare Phil Lowe & Co.

The fee members are very properly conscious of the ache greater inflation and better rates of interest would trigger the individuals it’s making an attempt to assist with a sustainable wage enhance.

Low affect

Therefore the fee spelt out why what seems like a giant wage enhance actually received’t have a lot inflationary affect.

Positive, an 8.65 per cent minimal wage enhance makes a giant headline (“an enormous pay enhance”, in line with the AFR), however the FWC underlined that solely about 0.7 per cent of Australian workers are paid the minimal wage and a fantastic lots of them are part-timers at that.

It’s a good proportion however it applies to a comparatively small variety of pay packets that include small quantities.

“Due to the negligible proportion of the workforce to which the nationwide minimal wage applies, this final result won’t have discernible macro-economic results,” mentioned the fee.

The RBA could or could not enhance the money charge once more, but when it does, it definitely received’t be due to scary minimal wage enhance headlines.

Ignore them.

interest rates
June is shaping up as an extremely shut name for rates of interest as consultants stay cut up over the longer term for mortgage payments. Picture: AAP

The trendy award minimal wages resolution is a unique matter, affecting 20.5 per cent of Australian workers, however the fee has once more been cautious, explicitly citing the necessity to keep away from entrenching excessive inflation expectations among the many a number of elements it thought-about earlier than delivering a 5.75 per cent wage rise from July 1.

“We’ll all be rooned,” mentioned Hanrahan and the enterprise foyer, predictably, seizing on a priority about inflationary risks not evidenced when enterprise is growing income and costs.

And right here once more, the FWC hosed down the standard suspects: “The whole wages price of the trendy award-reliant workforce constitutes about 11 per cent of the nationwide ‘wage invoice’.

“Wage will increase awarded in final yr’s Annual Wage Overview resolution immediately contributed lower than 10 per cent of the entire wages development in 2022.”

Not a wages breakout

Let’s repeat it: Solely 11 per cent of the workforce and fewer than 10 per cent of wages development – it’s nothing like a wages breakout.

That’s no shock for anybody who has been paying consideration, who truly has an curiosity in what occurs with wages as an alternative of regurgitating cliches.

The final award wages resolution was 4.6 per cent and it barely bothered the scorer, so an additional 1.15 per cent is hardly going to ignite a wage-price spiral, particularly given the forecasts of a slowing economic system and rising unemployment.

As a substitute of vaguely remembered Economics 101 idea, now we have the actual world instance of what occurred to wages final yr after the 4.6 per cent rise: Not a lot.

The September quarter wage worth index enhance of 1.1 per cent was certainly the very best in a dozen years – however that was not due to the FWC resolution.

In line with the ABS, 57 per cent of the index rise got here from “particular person preparations”, 28 per cent from enterprise agreements and simply 15 per cent from awards.

Supply: ABS

Final yr, greater than half of Australian jobs had a wage rise of lower than 3 per cent. Greater than two-thirds had lower than the FWC’s 4.6 per cent resolution.

The lucky 10 per cent who scored will increase of greater than 6 per cent had nothing to do with the Truthful Work Fee and the whole lot to do with “the market” working, as companies that might afford to pay to draw and maintain staff did so.

So with their “suppress wages to pacify the RBA argument” blown out of the water, you depend on the enterprise foyer to fall again on “it’ll ship companies broke”.

That’s the Darwinian nature of what’s meant to occur when labour is scarce and productiveness development is low. The least productive enterprises are supposed to fail as the value of scare sources are bid up, releasing up sources for the extra productive to develop.

It’s a private tragedy for the person enterprise house owners, however not for the economic system.

If it wasn’t pathetic, it might be humorous listening to the enterprise foyer sounding like such socialists when it fits them.

Hit by extra tax

And who’re the individuals the enterprise foyer is begrudging a pay rise that also leaves them going backwards of their lifestyle?

“The traits of workers who depend on fashionable award minimal wage charges and are immediately affected by our resolution are considerably totally different to the workforce as a complete,” famous the fee.

“They largely work part-time hours, are predominantly feminine, and nearly half are informal workers. They’re additionally more likely to be low paid.”

These are also the individuals who may have a better tax invoice this yr with the tip of the low and center revenue tax offset (LMITO). Somebody on $48,000 a yr can pay $1,500 extra tax and get three-fifths of one-quarter of not a lot from the looming stage-three tax cuts.

And you already know what the individuals who most likely will get actual cash out of stage-three tax cuts ignore? The affect of revenue tax on the precise take-home of staff.

Maintaining it quite simple, that 5.75 per cent wage rise for somebody on $50,000 a yr works out to be solely 4.3 per cent after tax.

No one will probably be spending up an inflationary storm with that.