Increasing the minimum wage doesn’t hurt jobs, says RBA, but it’s not clear cut for small businesses

New research from the Reserve Bank of Australia suggests increasing the national minimum wage won’t reduce the number of hours Australian employees work, but as the Fair Work Commission enters the final day of hearings for its annual wages review, those in the small business community say things aren’t that simple.

On Wednesday RBA researcher James Bishop released a paper crunching the numbers from 32,000 jobs between 1998 and 2008. He found that where the minimum wage had been increased by a flat dollar amount each year, it had “no adverse affect on hours worked”.

This runs counter to arguments lodged in submissions to the Fair Work Commission about the national minimum wage, with sector groups warning that increasing the minimum standard this year could lead to businesses being unable to offer their workers shifts due to cost pressures.

The Fair Work Commission will complete its hearings this week ahead of handing down a judgment on the minimum wage level for the next financial year. In the lead-up, business groups urged caution this year given last year’s annual increase of 3.3%.

The National Retailer’s Association argued workers should get an increase of zero percent this time around, while both the Australian Retailers’ Association and Australian Chamber for Commerce and Industry have advocated for a conservative rise of 1.9%.

Meanwhile, the Australian Council of Trade Unions are pushing for a $50 a week increase, which would amount to a 7.2% jump on the current minimum hourly rate of $18.29 an hour.

This year’s wage review is occurring against a backdrop of commentary about wage stagnation in Australia, as well as serious challenges in certain sectors like retail, where some business owners say rising rents are making it near impossible to break even. 

Discussing the RBA research on wages and jobs this morning, Australian Small Business and Family Enterprise Ombudsman Kate Carnell says “it’s clearly not simple for SMEs”.

“The important thing in these conversations is to get the balance right … there’s a good reason to give workers an increase, but you [businesses] have got to be able to pay it,” she says.

Carnell says the “vast majority” of Australians who rely on the minimum wage are employed in small businesses, and most of these employers do want to give their workers a bump in pay.

The RBA numbers may indicate increasing the minimum amount paid doesn’t mean businesses have to cut workers’ hours, but it can put pressure on them in other ways if the increase affects cash flow, Carnell says.

“The great dilemma here is that all businesses are put in the one bucket. People might say businesses have got the highest profits they’ve had for a long time and are able to pay. That might be true for very large businesses, but it’s not true for SMEs.” 

The union movement has strongly advocated for a significant increase in the minimum this time round, arguing that an increase of $50 a week is vital in order to make wages “fair and relevant” given Australia’s current social context.

The ACTU said in its submission to the Fair Work Commission that household spending is growing at around 1.5%, while real household income has dropped 0.2% over the past 12 months, meaning current minimum is not sustainable.

This conversation is further complicated by the fact that many small businesses owners are feeling pressures form factors other costs other than wages, and many are paying themselves well below minimum wage, says Carnell.

“We know that as many as 45% of small business owners are actually taking home taxable incomes which are less than the minimum wage,” she says.

Divisive debates

Meanwhile, the very process of discussing how Australia should set the national minimum wage means businesses, the government and the union movement are all on different sides.

“It is divisive,” Carnell says.

“Inevitably, the basis of the way we organise the minimum wage is that business puts their case, the unions put their case, sometimes government puts their case. That’s an absolutely reasonable method of doing it, but the problem comes in the public commentary: it becomes business vs the workers.” 

And these divisions don’t necessarily reflect the day-to-day reality for many small business owners.

Founder of Billie Goat Soap and owner of Fortitude at Work, Leanne Faulkner, says when she talks to other business owners about their challenges, the minimum wage rarely comes up.

Instead, she says business owners get benefits from the minimum wage system because it’s transparent and gives them certainty about where they stand on payments.

“What you don’t get to see in big business, on the other hand, is what has been argued away [in wage negotiations],” she says.

However, Faulkner highlights that when small businesses do have something to say on issues like the minimum wage, the fragmented and diverse nature of the sector can make it hard to for the collective voice of businesses to be heard.

“What gets me is that if we don’t have a Peter Strong or Kate Carnell championing our our cause, there’s nothing else; we [individual businesses] don’t have a powerful voice in the wages arena because we’re so diverse,” Faulkner observes.

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