Employers hang on minimum wage debate: Economy round-up

Debates among economists are usually fairly dry and removed affairs, but the current argument about how much of a pay rise to award low income earners goes directly to the business bottom line.

The central issue is how the Australian Fair Pay Commission, which makes its decision on the minimum wage in June, should respond to current high rates of inflation.

Higher prices hit low income earners in the hip pocket, so there is an argument that high inflation should result in a higher wage rise.

But on the other hand, awarding an across-the-board lift in the minimum wage could in fact result in increasing inflation, an effect that could undermine much of the real value of the pay rise.

The issue is a tricky one for AFPC head Ian Harper, but comments he made today suggest he is sympathetic to the pain inflation is causing the lower paid.

“The higher the rate of inflation, the more impact it has on low-paid people; and this particular inflation being driven by fuel prices, rent, and food pries, arguably has a disproportionate effect on them,” he told The Australian Financial Review.

It is also a tough bind for a Rudd Government that wants to be seen as both tough on inflation and a friend of the low paid.

Workplace Relations Minister Julia Gillard was today remaining tight-lipped on which way the Government will go, only saying she would support a “measured increase”.

In any event, there is one thing employers can be reasonably certain of in all this: the AFPC is likely to bring in a minimum wage rise somewhere between the $26 unions are pushing for and the $10 advocated by ACCI.

On the markets today, at 12.25pm the S&P/ASX200 is up 1.4% on yesterday’s close to 5208.9, thanks to a positive US lead.

The Australian dollar also continued its strong performance of recent days to be trading at US94.40c at 12.25pm, up sharply from yesterday’s US93.49c close.

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