The Australian Council of Trade Unions on Thursday called for Australia to ditch its minimum wage and replace it with a living wage. ACTU secretary Sally McManus told Fairfax a living wage must be enough that all working people can afford their rent, a a healthy diet, quality education, energy costs, entertainment and a contingency for unexpected costs.

What’s the difference between minimum and living wage? Does a minimum wage that does not afford recipients reasonable quality of life actually serve the purpose it was intended to? And is Sally McManus moving the union’s goal posts?

How did Australia get a minimum wage?

The timing of the announcement is not arbitrary — it comes a week before the 110th anniversary of the Harvester decision in 1907 which set a wage that was intended to allow an unskilled labourer to feed, house and clothe a wife and three children. The needs of a worker have informed — along with the needs of business, the impact on employment and the economy — the deliberations of minimum wage setting bodies (currently the Fair Work Commission) ever since, but the ACTU claim years of “neoliberal policy” has eroded the impact. Indeed, FWC president Iain Ross conceded that the 2017 increase in minimum wage would not lift workers who relied on it out of poverty.

Andrew Stewart, workplace law expert at the University of Adelaide, told Crikey said this was just as much down to the conduct of the ACTU itself.

“Reforms put in place by federal Labor in 1993, basically at the behest of the ACTU, moved the minimum wage to a safety net role and put more emphasis on enterprise bargaining in setting wages,” he said. “This necessarily meant workers with stronger bargaining positions did better and — not as much as astronomical executive pay increases, it must be said — widened the gap between the top and bottom earners.” 

Stewart also said it was misleading to focus on the federal minimum wage, when “most workers in Australia aren’t covered by the federal minimum wage, they get their wages from awards and agreements”.

But what’s the difference between the minimum wage and living wage?

The minimum wage is a legally mandated minimum or to paraphrase comedian Chris Rock, it’s your boss telling you that if they could pay you less, they would. Whereas the living wage is generally a higher rate, not formalised in law in other countries, that allows a worker to meet their basic needs to and have a little left over. Of course within that formulation are several words that could mean different things to different people — what are basic needs? What does meeting them look like? — and that makes calculating an exact figure and legislating around the concept difficult. In Britain (which the ACTU have based their figures on) it is calculated at 60% of the median wage — slightly higher in the Greater London Area than the rest of England

Stewart told Crikey that it was “simplistic” to argue that a lift to the minimum wages alone was enough, because of the other factors that affect quality of life. “The commission can’t have any affect on how tax is set, or how welfare is distributed,” he said.

What about business?

Of course the cries of the Chamber of Commerce and Industry or the Business Council of Australia that echoes through the weeks lead up to the annual wage increase are familiar. A higher minimum wage strangles trade, stymies the enterprise of smaller employers and kills off employment opportunities. Hell, if you’re the Institute of Public Affairs, you don’t even need to wait for anyone to propose a wage increase. 

“It’s the neo-classical view that if you set wages higher than the market would, it would result in job losses,” Stewart said. “Well guess what, governments and business have been saying that for 20 years, and there’s absolutely no evidence to back it up.”

How has it impacted other countries?

The initial moves towards a living wage in the UK attracted just these questions, but it has since became a point of consensus for the major parties — albeit they favoured different approaches –– in the lead up the last general election in the UK. New Zealand also has a living wage, which we’ll be exploring in greater detail next week.

However, Stewart said one had to be careful looking to other countries examples: “They are completely different systems, different tax, different welfare, different approaches to minimum wage; so you can’t really say this minimum wage is in place in country A, so it will also work in country B.”

The ACTU did not respond to Crikey’s questions before deadline.

Stay tuned. Next week, Charlie Lewis reports on how the Kiwis organise their living wage.