Minimum wage increase to reduce employment growth

The HR Nicholls Society notes with some disappointment todays Fair Work Commission decision to grant a 2.6% pay increase with effect from 1 July 2013.  This will be in addition to the 0.25% superannuation increase that will also apply from this date.

The HR Nicholls Society draws attention to a study by ALP MP, Andrew Leigh some time before becoming an MP when he was an economist at the Australian National University.  The Study found “minimum wage elasticity of labour demand” of 0.29, with a sensitivity analysis range from 0.25 to 0.4″  On the basis of an article by economist John Humphreys writing in “The Drum”, this means for each 1 per cent increase in the minimum wage we can expect a 0.29 per cent decrease in labour demand.

Given that we have over 11 million people working, that means the proposed 2.6 per cent minimum wage increase will reduce labour demand by 0.754 per cent, which is just on 83,000 jobs in addition to the almost 8000 jobs that will be lost as a result of the impending superannuation increase, totalling around 91000 people who will be out of work as a result of the 1 July pay and superannuation increases.

Click here to read the submission on raising the minimum wage the HR Nicholls Society made earlier this year to the Fair Work Commission