Each year the Fair Work Commission (FWC) sets the new minimum wage and also how much the award wages should rise. Although these are Australia’s lowest-paid workers, each year various business groups seek to blame them for inflation and any business difficulties.  Year after year business groups submit recommendations to the FWC arguing to limit the increase in wages to no more than inflation – and often even lower – because they say higher wage rises will cause inflation.

However, such fears are totally overblown.

Last week, our research on the minimum wage showed that over the past 35 years, increases in both award wages and the minimum wage have had no impact on inflation. We did this research in part to rebut these ongoing claims by business groups that increases in the minimum wage should not be above inflation for fear of causing a wage-price spiral.

That no wage-price spiral ever occurs is oddly never an impediment to business groups continuing to warn that it will happen should the FWC grant an increase in the minimum wage of more than inflation.

Such views are not even limited to times of high inflation that Australia has experienced over the past 3 years.

In its submission in 2017 to the FWC, the Australian Chamber of Commerce and Industry (ACCI) argued that the FWC should note the “continuing low inflation with underlying and headline inflation remaining low at or below 1.5% across 2016, and forecast to remain low.” You might think that given ACCI was acknowledging inflation was at 1.5%, which is well below the RBA’s target range of 2% to 3%, it would then argue for an increase in the minimum wage of above 1.5% or at worst 1.5%.

But no. Even in that period of historically low inflation, ACCI wanted Australia’s poorest workers to have a real wage cut. It recommended that “the Panel should award a 1.2% increase in the National Minimum Wage ($8.10 per week) and a 1.2% increase to modern award wages.”

Yes, one of the major business groups in Australia was arguing during a period of low inflation that the real value of the minimum wage should fall 0.3%.

And so it was not surprising that last week business groups, including ACCI, argued for an increase in the minimum wage of around 2.4% to 2.5% – despite the RBA currently forecasting inflation by the end of this year to be around 2.7%.

We can only hope that the FWC, as it has in previous years, ignores the pleas of the business groups.

Each year the value of the minimum wage falls due to inflation, and so the FWC increases the wage to account for the increase in prices and also to ensure that the lowest paid also enjoy a lift in living standards commensurate with the rest of the community.

Had instead the FWC over the past decade followed ACCI’s recommendations, the minimum wage would now be just $19.87 an hour rather than $24.10. That is $160 less a week, or around $8,350 less over the year.

Even worse, because ACCI and other business groups argue for an increase that is rarely above inflation, the real value of the minimum wage would now be 11.9% below what it was in 2015, rather than 6.7% higher.

Business groups always argue that doom is around the corner if their advice is not heeded, and when it is not heeded and that doom does not eventuate, they merely come back the next year hoping everyone forgot what they said 12 months earlier and preach more doom.

The FWC should again ignore business groups arguing for a real wage cut for the lowest-paid Australians.

Our research found an increase of between 5% and 9% is needed to restore the real value of the award wages to that consistent with levels anticipated before the pandemic. Such an increase would not cause inflation to rise significantly, but unlike the calls by business groups, it would ensure the lowest paid in Australia can live with dignity and receive a fair reward for their labour.