What is a 'living wage' and is it the answer for Australia’s working poor?


Momentum is growing ahead of the federal election for the minimum wage to be replaced. Here's what it would mean for Australia’s lowest paid workers.

Australia’s wage stagnation has put the concept of a living wage firmly on the political agenda.  

The Fair Work Commission’s annual review of the minimum wage has prompted calls for the nation’s 2.2 million lowest-paid workers to be given a hefty pay rise in line with a living wage.

More than 2.2 million Australians are earning the minimum wage.
More than 2.2 million Australians are earning the minimum wage.
SBS News

Combine that with an upcoming election – a vote billed by Opposition Leader Bill Shorten as a “referendum on wages” - and the idea suddenly looks much closer to becoming a reality.

How much is a living wage?

The Organisation for Economic Co-operation and Development (OECD) sets the relative poverty line at 60 per cent of the national median income.

That’s the level used by unions to calculate a living wage they say will ensure workers are not living in poverty.

Applying that formula to the current minimum wage in Australia of $18.93 an hour, or 54 per cent of the national median salary, would deliver a windfall to the lowest paid.

Minimum wage
SBS News

Under the Australian Council of Trade Unions' (ACTU) proposal to phase it in over two years, the minimum wage would rise by 6 per cent this year to $20.07 an hour, followed by 5.5 per cent next year to $21.17 an hour.

That’s the equivalent of an extra $72.80 a week over two years.

While senior researcher at Melbourne University’s Centre for Workplace Leadership Josh Healy says that’s the most straightforward formula, it’s not the most accurate way to determine what someone needs to avoid poverty.  

AAP Image/Lukas Coch
Restaurant and cafe owners don't want to give employees a pay rise.
AAP Image/Lukas Coch

Mr Healy told SBS News the amount doesn’t consider the various makeup of families.

“What a particular type of worker who lives on their own, needs to escape poverty … is going to be a lot less than what the same worker, if they had a spouse and a couple of kids would need to be as economically secure,” Mr Healy said.

It also doesn’t factor in other sources of household income, such as welfare benefits, or if one spouse is earning significantly more.

He also points out it is far from a “poverty fix”.

“The poorest people tend not to work, the very poorest are much more socially disadvantaged and excluded from the labour market so what this is about is alleviating work poverty.”

How would it be implemented?

Before workers start celebrating this potential windfall, University of Adelaide employment law expert Andrew Stewart told SBS News it’s highly unlikely the union will get its way, even if Labor is elected.

Mr Shorten has declared “the minimum wage should be a living wage” but has baulked at the union’s figure of 60 per cent of the national median wage.

Opposition leader Bill Shorten is considering tweaking Australia's industrial laws to lift wages for low-income earners.
Opposition leader Bill Shorten is considering tweaking Australia's industrial laws to lift wages for low-income earners.

Labor has yet to detail how it would deliver its version of a living wage, but has flagged legislative changes.

Professor Stewart said Labor isn’t suggesting the independent umpire’s powers be overridden by the government.

Instead, he predicted Labor would tweak the industrial laws to encourage the commission to aim for a living wage, and put more emphasis on the needs of workers and less on the needs of business.

“Either way I think it’s clear that there’s going to be no suggestion we’d get from where we are now to a living wage in a single go,” Professor Stewart said.

The Australian Greens have vowed to go further and move to amend legislation in the next parliamentary sitting to ensure the minimum wage is at least 60 per cent of the median.

Will a living wage cause job losses?

Employer groups and Prime Minister Scott Morrison have warned of significant job losses if Mr Shorten’s plan to legislate for a living wage is successful.

"He's saying to coffee shop owners and small businesses around the country: 'sack someone'. That's his policy - that people should be sacked," Mr Morrison told reporters this week.

Prime Minister Scott Morrison
Scott Morrison says raising the minimum wage to a living wage would force employers to sack workers.

That rhetoric echoes the Australian Chamber of Commerce and Industry, the Business Council of Australia and Australian Industry Group who are arguing for much more modest increases to the basic wage.

One industry group is even calling for a freeze on wage rises.

The Restaurant and Catering Australia association – which represents 45,000 businesses, the majority of which are owner-operator ventures – cannot afford to pass on another pay rise.

Increases to the minimum wage in the last two years have been above inflation which CEO Juliana Payne has already forced businesses to tighten their belts.

But Professor Andrew Stewart says he’s heard it all before.

“Business groups have a pretty sorry track record when it comes to minimum wages.

“Every single year, without fail, they argue the sky is going to fall in if wages increase significantly, and always the prediction that if we get a wage rise of a certain amount this is going to cost jobs.”

How do other countries do it?

Unlike the proposal in Australia to replace the minimum wage with a higher living wage, in other countries the two co-exist.

In the UK, the Low Pay Commission decides the level of the minimum wage, but a voluntary “real living wage” has been adopted by many employers, who want to boost their reputation.

The official real living wage is higher in London than other areas to recognise the higher cost of living in the capital city.

In the US, where the federal minimum wage can remain unchanged for years, many local governments have stepped in.

Mr Healy said the local model doesn’t cover all businesses in the area, but if they want to do business with them they must comply.

Is it a vote winner?

As voters sometimes struggle to tell the difference between the major parties, this is one area where there is a clear divergence of policy.

Mr Morrison has described their different approaches to the economy as a choice between the politics of entrepreneurship and envy.

Prime Minister Scott Morrison
The prime minister is going after Bill Shorten, who's backing a wage rise for low paid workers.

Professor Stewart believes the opposition has successfully tapped into a feeling in the community that they’re not benefitting from the relatively strong economy.

“If it can continue to frame the next election as being about wages I think that’s going to work very well for it, not just because it’s territory that it’s more comfortable with than the Liberal Party and Nationals, but also because quite genuinely I do think that there is a sense out there in the community that something is going wrong,” he said.

But the alarm from employer groups and warnings of job losses could convince other voters to back the Coalition.

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