COSBOA: The reality of what will happen if the minimum wage is raised by 3.5%

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Australia has one of the world’s highest minimum wages, a fact COSBOA has pointed out time and time again when unions and others on the far left have shouted “workers are underpaid, everything is terrible”. Yet, despite our high minimum wage, low-income workers in Australia are still struggling to pay for basic living expenses like housing and education.

This problem has been getting media attention again as the Fair Work Commission gets ready to make a decision on how much to raise the minimum wage by at the end of June. The solution proposed by the unions and some textbook-reading economists is to raise the minimum wage by 3.5%, even 4%.

We’re not economists, but we know that won’t work for small business owners.

Businesses want to remain open and want to provide certainty about employment to their workers, but the vulnerable environment triggered by responses to the COVID-19 pandemic creates insecurity in that employing environment. 

COSBOA encourages the Fair Work Commission to consider supporting a stable employment regime through a minimal increase in the award-based minimum and associated wages. We should also be looking for ways to address the cost of living — things like the cost of housing, the cost of commercial rent, the cost of childcare, and the cost of energy — which will benefit small business owners and employees alike.

Here’s what will happen if the minimum wage is raised by 3.5% like the unions want, but nothing is done about the cost of living.

Small business owners will get out a calculator and realise they can’t afford to pay all of their current employees the new minimum wage. This is especially likely for small businesses in hard-hit industries like hospitality and tourism, as well as small businesses located in CBDs (particularly the Melbourne CBD).

They will be faced with the choice to:

  • Let some of their employees go and do more work themselves;
  • Give casuals fewer shifts and do more work themselves;
  • Reduce the business’ opening hours; 
  • Pass the cost onto the consumer, contributing to the raised cost of living; or
  • For those who are particularly desperate, consider paying their workers in cash (which we don’t condone).

It would be great if all employers had the money to give minimum wage workers a pay rise. No one wants to see their staff struggling to pay for the basics like food, rent, childcare, petrol, etc. We’re humans and we care about other humans.

But a lot of small businesses just don’t have that money. Not now, after repeated lockdowns, lost customers, and deferred bills and loan repayments piling up from 2020. 

And especially not now given the total remuneration to superannuation-entitled workers is already set to increase. The superannuation guarantee rate will increase to 10% from July 1. This will lead to an increase in workers compensation premiums, payroll tax, and leave entitlements, all of which are calculated on total remuneration amounts. Every $10 increase in minimum wages also has a flow-on cost increase of $1 to superannuation (the 10%), as well as the on-costs mentioned above.

Another related issue to consider is the difficulty small business owners are experiencing with recruitment, particularly with filling unskilled roles in regional areas.

Some economists have opened up their textbooks and concluded that businesses will raise wages in order to attract staff. But this isn’t what we’re seeing.

We’re hearing story after story of small businesses reducing their opening hours and of small business owners working longer hours themselves. For example, many service stations in rural areas are going back to 1970s opening hours, no longer opening overnight or on Sundays. Last month, the ABC published a story about small businesses in the town of Braidwood, New South Wales, making the decision to close midweek.

The lesson here is that small business owners don’t always behave in ways that economists can predict.

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Doug Booth
Doug Booth
11 days ago

Increased wages + the increase in super = lost jobs + higher product/service prices