Minimum wage increases didn’t kill jobs, may have boosted them: RBA economist

The study by an RBA economist found putting money in workers pockets did not kill jobs.

The study by an RBA economist found putting money in workers pockets did not kill jobs. Photo: Getty

The annual increase in Australia’s minimum wage has not killed jobs or cut hours for workers, according to new research that suggests those pay rises may have actually boosted employment.

In research published on Wednesday, Reserve Bank economist James Bishop found jobs were created when award wages were increased.

Mr Bishop’s paper – which comes as the ACTU calls for an unprecedented 7.2 per cent wage boost and one retail group argues against any increase – is one of only a few studies to consider the impacts of minimum wage rises in Australia.

“I find no evidence that these small, incremental increases in award wages have an adverse effect on hours worked or the job destruction rate,” he wrote.

Instead, “jobs with larger award wage rises had larger increases in hours worked”, Mr Bishop found.

The economist analysed job-level data between 1998 and 2008, when award rates were increased by a flat amount across the board each year. The average national minimum wage rise – which sits below award rates – was 3.8 per cent over the period.

The findings cast doubt on claims from some employer groups, such as the National Retail Association, which has argued for no change to the minimum wage in a recent submission to the Fair Work Commission on the grounds it would harm the industry.

But Mr Bishop also emphasised “there will always be some point at which a minimum wage adjustment will begin to reduce employment”.

It comes as the nation’s employer groups and unions make their final cases to the Fair Work Commission, which is conducting its annual wage review.

Keeping pace … just

Also on Wednesday, Australia’s statistics bureau revealed wages grew by only 0.5 per cent in the first three months of the year, meaning wage growth over the last 12 months was a mere 2.1 per cent – barely keeping pace with inflation.

ACTU secretary Sally McManus said it was time for the nation’s lowest-paid workers to receive a $50-a-week pay bump.

“Australia needs a pay rise,” she said.

“Corporations are making record profits while the rest of us continue to struggle.”

The Australian Industry Group, which proposes a small 1.8 per cent increase to the minimum wage, has argued such a significant boost to the minimum wage would do serious damage to businesses.

The employer group argued on Wednesday that an increase above 2.1 per cent would also push 196,300 minimum wage workers into a higher tax bracket.

The Fair Work Commission, which held hearings on Wednesday, has also cited research that found small increases in the minimum wage did not hurt employment.

The RBA economist, Mr Bishop, said that although he found no evidence award wage rises would destroy jobs, it did not “rule out an adverse effect on employment”.

“For instance, the adverse consequences of higher wage floors may be borne by job seekers, rather than job holders,” he said.

He also found award adjustments handed down by the wage board were passed onto wages by employers, although there appeared to be some evidence of “non-compliance by firms” over the period.

Last week’s federal budget is built on the assumption that wages will grow by 2.75 per cent over 2018-19, before hitting 3 per cent the following year.

The Reserve Bank sounded the alarm on workers’ pay packets again on Tuesday, saying it was concerned wage growth may fail to reach Treasury’s forecasts.

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