How Should Minimum Wages be Set in Australia?

Two recurring themes in submissions by industry groups and the Coalition Government to Safety Net Cases administered by both the Australian Industrial Relations Commission and the Australian Fair Pay Commission, as well as in decisions by both Commissions, have been that (1) an improvement in the tax/transfer arrangements for the low paid is a partial substitute for minimum wage increases; and (2) the family circumstances of low wage recipients should influence the degree of minimum wage adjustment. In this paper it is argued that conflation of the wage and tax/transfer systems introduces major contradictions into the principles of minimum wage adjustment, and that reliance on the tax/transfer system leads to adverse economic and social consequences. A simple rule for minimum wage adjustment is advocated, with the minimum wage level also being periodically recalibrated to enable the ongoing social inclusion of its recipients. Finally, in the international literature, the macroeconomic consequences of modest minimum wage adjustment remain contested, but this debate becomes largely irrelevant if the Federal Government renews its commitment to full employment through a Job Guarantee. Then the minimum wage also becomes the nominal anchor of the wage and price system.