How is the minimum wage calculated?

Yesterday, the Fair Work Commission announced a 2.5% increase in the minimum wage, and related award minimum wages. The Commission took the advice from an ‘Expert Panel of the Commission’, who has set the minimum wage since 2010. Each year it reviews the current minimum wage and issues a decision, which comes into effect on 1st July of the following financial year. A yearly review of minimum wages is not a certainty in other developed countries – in the U.S, for example, there is no regular review of the minimum wage, and the minimum wage has not been raised since July 2009. 

Seven people sit on the Expert Panel: a President, three other full-time members and three part-time members. The panel is composed of experts in workplace relations, economics, social policy and commerce. This group considers written submissions from organisations and individuals who wish to see the minimum wage rise or fall (anyone can draft a submission – even you!)

Under the Fair Work Act, the Expert Panel is required to publish all written submissions from interested individuals or organisations. There’s also a number of organisations, industry groups and unions who submit their own research for consideration as well (this also has to be published). The Expert Panel then makes comments on these submissions, and ultimately drafts an Annual Wage Review. When this review is ‘handed down’, that’s when we find out how the minimum wage will change at the beginning of the next financial year (unless stated otherwise in relation to specific industries). This happened at 3:30pm yesterday, and was broadcast online. 

What factors are normally taken into consideration? 

In the Fair Work Act, a number of factors are identified as ‘objectives’ in Section 284 that the Fair Work Commission needs to meet. The minimum wage can be set to help meet these objectives. These include making sure the national economy is performing and competitive, the employment rate is growing, the needs of the low paid are met and young workers are adequately paid. Interestingly, there is no mention of other social metrics that can be tied to the minimum wage (such as a Human Development Index or other measures of poverty). 

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