Fair Work Commission goes back to the future for minimum wage decision

The reason is the commission has effectively gone back to the principle of flat dollar increases – a practice discarded in 2011 but common under the Hawke-Keating governments to contain wage explosions while doing the best for the low paid.

As one former Fair Work commissioner said, “it’s back to the future”.

A flat dollar increase of $40 a week effectively awards a higher increase proportionally to the lowest paid and creates lower increases the more you earn.

It’s a particular Labor approach, one even proposed by the Albanese government, and likely to be the guide to future wage decisions if inflation remains an issue and fears of wage-price spiral become reality.

Whether a 4.6 per cent increase will be inflationary is a serious question.

The increase is more than double last year’s increase and the highest since 2010 when a 4.8 per cent pay rise was already making up for a wage freeze during the global financial crisis.

Some economists have even upped their overall wage growth forecasts to 3.7 per cent by mid-2023 off the back of the decision and predict it will contribute to inflation peaking at more than 7 per cent before October.

But a two-tiered approach could also lead to problems in an industrial relations system that has not dealt with such a practice in a decade.

Unions and employers opposed flat dollar increases or varied percentage rises when commissioner Peter Hampton flagged the option last month, with both sides backing either the lowest uniform percentage increase or the highest.

The commission itself stopped the practice in 2011 due to concerns it was reducing the relative pay gap between award classifications, with implications for skills and work value claims.

At one point, in 2006, such dollar increases amounted to an extraordinary 5.6 per cent pay rise for the lowest paid.

In this year’s decision, the wage panel accepted that its approach will result in a compression of pay relativities even if minor.

However, that consideration is to be “balanced against the need to provide greater relief to low-paid workers in the context of rising cost of living pressures”, it said.

The departure will also have implications for the hundreds of thousands of workers on enterprise agreements that tie their wage rises to the annual wage decision.

Many of those agreements operate as if the panel will deliver a uniform pay increase and simply refer to the increase in the wage decision.

However, this year’s increase has been split into at least three different ones: a 5.2 per cent for the lowest paid, a $40 a week increase for those earning less than $869 a week, and 4.6 per cent for those earning more than $869.

For the 145,000 retail workers at Woolworths supermarkets and Big W stores, for example, their agreement rate is already more than $1 an hour above the minimum wage and so staff are more likely to see wage rises of 4.6 per cent.

But unions could argue that the agreement’s link to the wage decision requires the $40 a week increase or even 5.2 per cent increase.

Such issues will not be solved overnight. But businesses may have to get used to it.