ESA National Economic Panel Polls

Wage freeze for economic recovery

Economists back wage freeze 21-19 in new Economic Society-Conversation survey

Peter Martin, Crawford School of Public Policy, Australian National University

Australian economists narrowly back a wage freeze in the minimum wage case now before the Fair Work Commission, a freeze that could flow through to millions of Australians on awards and affect the wages of millions more through the enterprise bargaining process.

The annual case is in its final stages after having begun before the coronavirus crisis and been extended to take account of its implications.

In its submission, the Australian government called for a “cautious approach”, prioritising the need to keep Australians in jobs and maintain the viability of businesses.

The minimum wage was last frozen in 2009 amid concern about unemployment during the global financial crisis.

The Economic Society of Australia and The Conversation polled 42 of Australia’s leading economists in the fields of microeconomics, macroeconomics, economic modelling and public policy.

Among them were former and current government advisers, a former and current member of the Reserve Bank board, and a former head of the Australian Fair Pay Commission.

Each was asked whether they agreed, disagreed, or strongly agreed or strongly disagreed with this proposition:

A freeze in the minimum wage will support Australia’s economic recovery

Each was asked to rate the confidence they had in their opinion, and to provide reasons, which are published in full in The Conversation.

Half of those surveyed – 21 out of 42 – backed the proposition, seven of them “strongly”.

Nineteen disagreed, seven strongly. Two were undecided.

The minimum adult wage is A$19.49 per hour.

There was agreement among most of those surveyed that, in normal times, normal increases in the minimum wage have little impact on employment – a view backed by Australian and international research.

But several of those surveyed pointed out that these are not normal times.

Bad times for employers…

Gigi Foster said many businesses were operating closer to the margin of profitability than ever before, and were likely to stay that way for many months.

Rana Roy quoted one the pioneers of modern economics, Joan Robinson, as observing in 1962 that the misery of being exploited by capitalists was “nothing compared to the misery of not being exploited at all”.

John Freebairn argued that a freeze of labour costs, together with very low expected inflation, could provide a key element of certainty in the uncertain world facing households, businesses and governments.

Robert Breunig and Tony Makin suggested that with prices stable or possibly falling, a freeze in the minimum wage might cost workers little or nothing in terms of purchasing power.

Guay Lim and several others said if the government wanted the economic stimulus that would come from an increase in the minimum wage, it had other ways of bringing it about without making conditions more difficult for employers.

…and bad times for workers

Those supporting an increase saw it as a way to bolster consumer confidence and redress unusually weak worker bargaining power.

Wage growth before the coronavirus hit was historically low at close to 2%, an outcome so weak for so long that in 2018 and 2019 the Commission awarded much bigger increases in the minimum wage, arguing employers could afford them.

James Morley was concerned that a freeze in the minimum wage would “mostly just lock in” inflation expectations that were already too low.

Peter Abelson said labour productivity rose with respect for workers and fell with disrespect. A wage freeze would disrespect workers.

Saul Eslake proposed a middle way, deferring a decision rather than granting no increase. He said the increase that was eventually granted should do no more than keep pace with inflation.

The economists were asked to rate their confidence in their responses on a scale of 1 to 10.

Unweighted for confidence, 45.3% of those surveyed opposed a wage freeze. When weighted for (relatively weak) confidence, opposition fell to 43.5%.

Unweighted for confidence, half of those surveyed supported the proposition that a freeze in the minimum wage would assist Australia’s economic recovery.

Weighted for confidence, support grew to 51.6%

The Fair Work Commission is required to complete its review by the end of this month.

Individual responses

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Responses (41)


Peter Abelson	Strongly disagree	7	As per the proposition that a wage freeze would help the economy, the major issue is the elasticity of demand for low paid labour. If the demand for low paid labour is inelastic (an elasticity below one), which is the most common estimate, an increase in the minimum wage will increase low paid labour income and spending. Further, political and bussiness leadership needs to show respect and inclusiveness. Labour productivity rises with respect for the workforce � and falls with disrespect. Thus, raising the minimum wage will help the economy. A wage freeze would not.


Alison Booth	Disagree	7	It is not a good time to freeze the pay of employees covered by the minimum wage (the majority of whom are female), and many of whom contributed to helping keep the economy ticking over during lockdown (think health-care workers, school and hospital cleaners, supermarket staff, distribution etc., all vital to our society during the pandemic). At a minimum the minimum wage should be maintained in real terms in order to allow covered workers to maintain their usual consumption bundles. This will also help the economy. This is one of those partial equilibrium questions that are impossible to answer definitively, since the effects will also depend on what is happening elsewhere in the economy.


Robert Breunig	Strongly agree	10	There is very little downside to doing this and large potential upside. Prices are stable or deflationary so there is no erosion in real wages by a wage freeze, and if it leads to even some small employment increase, that is unambiguously good.


Lisa Cameron	Uncertain (neither agree nor disagree)	6	Careful empirical research has demonstrated that in regular times employment does not necessarily fall with moderately-sized minimum wage increases. Minimum wage increases can even increase employment through boosting demand and through other avenues. COVID-19 means that we are, however, not in "regular times". Nevertheless, a wage freeze at a time when wage growth has been very low, when the share of the nation's income accruing to capital has been increasing and when there is social unease about perceived increases in inequality has its own down sides: A wage freeze would also not necessarily increase employment. On balance, I would favour a small increase in the minimum wage.


Fabrizio Carmignani	Disagree	7	The argument that a higher minimum wage increases unemployment does not take into account two important factors. First, the evidence on the relationship between minimum wage and unemployment is mixed. That is, an increase in the minimum wage does not necessarily increase the level of unemployment. Second, in this context, a wage freeze would be contractionary, while a moderate increase would support private consumption and aggregate demand (the potentially adverse effect on profits and business investment would be moderated by the increase in capacity utilisation). All in all, the argument for the minimum wage freeze is not established, theoretically and/or empirically, and therefore I disagree with the statement.


Ken Clements	Strongly agree	9


Deborah Cobb-Clark	Agree	9


Lin Crase	Disagree	9


Kevin Davis	Strongly disagree	8	I am not aware of any compelling evidence to support this proposition. It ignores the effect of higher wages on consumption and aggregate demand. While higher labour costs might contribute to higher prices - that should be a minor concern at a time when inflation is below the target range. And this ignores any distributional considerations!


Janine Dixon	Disagree	7	This isn't the year for a big hike in minimum wages, but a freeze goes too far the other way. Minimum wage earners spend a high proportion of their earnings and will help to return household consumption to more normal levels as social distancing measures are lifted.


Brian Dollery	Agree	8	Small and mediam sized enterprises will struggle over the short and medium term to retain existing staff once federal government wage subsidies cease. A freeze in minimum wages after the federal wage subsidy ends will assist in maintaining employment.


Uwe Dulleck	Disagree	7	At currently just under $20 I don�t think that a modest increase in the minimum wage will have a major effect either way (a pre-COVID Resereve Bank of Australia study points in that direction). In the current situation, I would expect that a higher minimum wage will lead to higher income and more domestic consumption. Trying to support businesses suffering under the crisis with such a regulation, is in my eyes too costly, as the main beneficiaries will be businesses who do well after the crisis (employing many workers) - they may not be the once most in need. Those that need help should receive it in a more targeted way, and they may benefit much more by increases in domestic demand.


Chris Edmond	Disagree	7	As we come out of the more "exotic" lockdown-influenced phase of the crisis into the more "conventional" phase of the crisis, the main thing holding back job creation is demand. If business cash flow increases, jobs will follow. A freeze in the minimum wage won't help on this front, it might well hurt. To be clear, the usual economic arguments against a minimum wage are implicitly full-employment arguments, whatever else one might think about those arguments (and the vast empirical literature on the employment effects of the minimum wage) those circumstances clearly do not apply right now.


Craig Emerson	Strongly disagree	8	A fundamental weakness in the Australian economy before the COVID-19 crisis was weak wages growth and the decoupling of labour productivity growth and wages growth. This has adversely affected consumption, which comprises 57 per cent of gross domestic product. When the pandemic is over, workers will have even weaker bargaining power. Without a statutory increase in wages, there will be little or no wages growth going forward, guaranteeing that any recovery will be feeble. The federal government's industrial relations roundtables with unions and business organisations might improve the enterprise bargaining system, but in the absence of a statutory increase in the minimum wage the prospects of cooperation between unions and employer organisations will be severely compromised.


Saul Eslake	Disagree	5	I would understand if the Fair Work Commission were to decide to defer a decision as to the amount of any increase in the minimum wage until the economic outlook, in particular for the labour market, becomes clearer than it is today - which should be by early October. But that�s different from suggesting that the minimum wage should be frozen at its current level. I think a consumer price index-linked adjustment would be appropriate: I don�t support a large increase in real terms. In the current and foreseeable near-term environment it would probably be quite difficult to separate the impact on employment of an adjustment to the minimum wage from all the other factors which will be affecting the labour market.


ALLAN FELS	Agree	6


Gigi Foster	Agree	8	The main reason to agree with this proposition is that businesses in industries that have been particularly hard-hit by the recently-induced economic downtown are disproportionately likely to depend on minimum-wage workers (particularly hospitality and retail). Those industries are going to suffer business closures regardless of what we do, and on the margin some closures of well-run businesses that we would like to see continue might be averted by keeping the wage bill down. Also, a frozen minimum wage means that we can spread the wage bill of a given company around to more workers, helping to reduce inequality in the impact of the downturn. Some prior research has found that higher minimum wages do not translate into more unemployment, but those studies have been run in normal times, with robust demand in place and with businesses not operating as close to the margin of profitability as what we are seeing now (and likely to see for many months). The final arguments in favour of the proposition are that Australia's minimum wage is already quite high by the standards of peer nations, and that the majority of workers in Australia are covered by award rates or EBAs. For them, the minimum wage does not bind.


john Freebairn	Strongly agree	8	A freeze of labour costs, together with expected very low inflation, would provide a key element of certainty in what is a very uncertain world facing decision makers in households, businesses and governments. Claims that a higher minimum wage would stimulate household income and aggregate expenditure are hollow. Higher wages do not come as manor from heaven; they come as lower incomes for others. Many on minimum wages are members of medium and high income households. Reductions in business returns have adverse indirect effects on confidence and investment decisions which adversely effect employment over the medium and longer term. Increases in social security payments, including Newstart, and reductions in income taxes at lower levels are better targeted ways to stimulate increased consumption expenditure by low income households. While there is on-going uncertainty about the elasticity of demand for labour in general and for low skilled labour and minimum wages in particular, both in theory and in econometrics, the policy priority to reduce unemployment to increase social welfare in my view supports a cautious strategy to not increase Australia's very high minimum wage in the current environment of record high unemployment and underemployment.


Renee Fry-McKibbin	Uncertain (neither agree nor disagree)	10


Lata Gangadharan	Disagree	8	A freeze in the minimum wage will be easier for businesses as a wage increase is hard to contemplate right now, but this wont really aid economic recovery. To increase demand we need people (particularly those on low wages) to have money. A freeze in the minimum wage wont help with that.


Ian Harper	Agree	8	Raising Australia�s minimum wage raises all of the minimum classification wages for award-reliant employees, around one-quarter of the employed workforce. It also raises wages in individual and enterprise-based employment agreements where these specify wage increases linked to the annual increase in the minimum wage. When jobs are already disappearing, raising wages simply makes it more likely that people lose their jobs as businesses struggle to recover and/or that businesses� decisions to re-employ people or raise their hours of work are delayed. Freezing minimum wages this year switches off this disincentive to employ/re-employ workers, including the lowest-paid employees, as the economy manages through the current downturn.


John Hewson	Disagree	8	An important element of the recovery must be an improvement in consumer confidence and spending. Any increase in minimum wage should also be in context of significant increase in Newstart coming out of JobSeeker


RICHARD HOLDEN	Strongly agree	9	In current economic conditions the employment-destroying effects of a higher minimum wage outweigh the benefits to minimum wage workers have slightly more spending power.


Geoffrey Kingston	Agree	6	There is currently great uncertainty about inflation down the track. In particular, prices could fall. Even if we froze money wages, real wages could rise, making unemployment unnecessarily high. For such reasons, now is not the time to reduce the flexibility of wages.


Michael Knox	Strongly agree	9	The severity of the current slump will the greatest since the the National Accounts began to be published following World War Two. The potential for job losses is the greatest in that period. At best the economy is not expected to fully recover before 2022. In the private sector very many senior staff and business managers have taken pay cuts of twenty percent or more to maintain employment. The government is doing its best to provide adequate demand through fiscal stimulus. An increase in minimum wages during this period would only serve to reduce employment for the lowest paid.


Emily Lancsar	Disagree	8	On face value might expect cheaper labour due to a freeze in the minimum wage to increase demand for labour and reduce unemployment. However, it is not clear degree to which that holds in practice. Due to the smaller proportion of Australians covered by the minimum wage compared to in the past, the impact today will also be much less than it would have been a few decades ago. Also has important equity implications in relation to who is bearing the burden of stimulating the recovery. There are more effective and equitable ways to support Australia�s economic recovery.


Guay Lim	Agree	8	A wages' pause (especially in an environment of low price inflation) would contain labour costs, allow businesses to save/create jobs, encourage employment and support the process of economic recovery. While a freeze in the minimum wage will likely disadvantage low income earners, it can be mitigated by other direct fiscal supports.


Tony Makin	Agree	9	The government-instigated COVID19 lockdowns were aimed at protecting the whole community. Yet the economic cost has been borne mainly by private enterprises (without compensation) and their employees in certain sectors. A revival of activity in these sectors is therefore central to economic recovery and a minimum wage freeze for firms most affected by the lockdown would help. Increasing the minimum wage (already the highest in the world) for the insiders already in employment would come at the expense of jobs for the currently unemployed outsiders. With the RBA forecasting deflation in the June quarter, real wages could rise in any case.


Warwick McKibbin	Disagree	5


Flavio Menezes	Strongly disagree	8	My reading of recent research from a number of developed countries, including the USA and UK, suggests that raising the minimum wage has a small negative effect on employment. However, raising the minimum wage significantly increases the earnings of low paid workers in employment. Of course, these studies were not undertaken during a pandemic! Given the need for economic stimulus as we recover from the COVID-19 pandemic -- with restrictions being eased, and that low wage workers spend a larger share of their income, the macroeconomic benefits of increasing the minimum wage are very likely to outweigh the costs. The JobSeeker payment, however, should continue to include the Coronavirus Supplement to minimise the impact of any reduction in employment.


James Morley	Disagree	8	A freeze in the minimum wage would mostly just lock in lower inflation expectations and lower the real incomes of those subject to minimum wages. Both effects would hurt the economic recovery because they would result in higher real interest rates, higher real debt burdens, and lower aggregate demand. The presumption in the question is that a freeze would stop the real minimum wage from going up by such an amount that employers would respond by reducing their workforce. However, the impact of, say, a nominal 3% increase in the minimum wage on the quantity of labour demanded is likely to be far less than would be the impact of the fall in aggregate demand due to a freeze in the minimum wage.


John Quiggin	Strongly disagree	9	There has been extensive debate on the effects of minimum wages on labor demand. Over the last 25 years, the general conclusion has been that these effects are relatively small. However, these questions are irrelevant in the current context. The pace of economic recovery will be determined entirely by macroeconomic conditions, including fiscal and monetary policy, continued success in suppressing the pandemic, developments overseas and consumer confidence. In this context, an increase in minimum wages will have a modest positive effect in bolstering demand. In the longer term, the costs of the pandemic will have to be shared across the community. The crisis has shown that the work of lower-paid people is vital and undervalued, while much (not all) highly recompensed activity turns out to be of marginal importance in a crisis. Those on higher incomes should bear all or most of the cost of recovery.


Rana Roy	Strongly agree	9	Joan Robinson once remarked (in Economic Philosophy, 1962): �The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all.� I read this remark, along with much of her output, when in primary school in Calcutta in the 1960s; and the point she was making was immediately, and visually, obvious to me, in the contrast between the exploited but confident and combative class of employed workers on the one hand and the pauperised ranks of the unemployed on the other. Mutatis mutandis, millions of Australians in the coming fiscal year, 2020-21, are likely to face much the same choice: either a return to work, with a minimum wage frozen in nominal terms and wages across the board under pressure, or a reduction to the unhappy status of Centrelink �clients�, no longer on Jobkeeper nor on the enhanced Jobseeker, and policed anew by robots, robodebt collectors, and seemingly robotic Public Servants. In my judgement, the first outcome is preferable to the second, whether measured in welfare terms or in terms of its contribution to �economic recovery�. Moreover, it is very possible that, in this particular year, a freeze in the minimum wage in nominal terms might well translate into a small increase in real terms. If so, the welfare outcome for workers currently employed on the minimum wage will be little changed � whilst the gain in welfare for those who are enabled to return to work will be large. Doubtless, there are those who will argue that, in order to support aggregate demand and thereby support Australia�s economic recovery, governments should support submissions to raise the minimum wage - and should act directly to raise the wages of its own Public Servants. But the argument is a non-sequitur. Governments can and do support aggregate demand in a bewildering variety of ways, and are under no obligation to do so in a way that carries a high risk of cementing a state of high unemployment. Insofar as the larger macroeconomic aim here and now is to support and raise aggregate demand, the best and fairest way to do so � best in terms of allocative efficiency, fairest in terms of distributional equity � is for the Australian Government to provide a flat-rate �Universal Pro-Recovery Bonus� to all residents of Australia, and which could perhaps serve as a proto-type for a "Universal Basic Income" in the future. Finally, I should stress that I agree with a temporary freeze in the minimum wage as an emergency measure � to address the prospective emergency of mass unemployment. My general perspective remains as stated in the October 2017 National Economic Panel poll and the subsequent February 2018 Economic Society submission to the Senate Select Committee on the Future of Work and Workers: Australia needs to move beyond the sub-optimal equilibrium of stagnant wages and stagnant productivity that has obtained here and in much of the western world since the Global Financial Crisis of 2008, and on to a high-wage, high-productivity growth path, making full use of technological possibilities. The point, however, is that, in order to advance along the path uniting high and rising wages with high and rising productivity, workers must first of all be in work.


Stefanie Schurer	Strongly disagree	9	I have understood the question as hypothetical, because the Fair Work Commission (FWC) has just increased national minimum wages by 3 percent, amounting to an extra $21.60 a week. This is a lower increase than the increases seen in the past two years and what the Australian Council of Trade Unions had requested (6 percent). Yet, the increase is substantially higher than what industry groups had hoped for (1.8-2 percent) and expected inflation for 2020-21 (experts predict 1.2-1.6 percent). From an economic perspective, the "increase" in the minimum wage, as opposed to a "freeze", is welcomed. My disagreement with the above statement and my support for an increase in the minimum wage is based on the following argument: Theoretically, minimum wages have ambiguous effects on aggregate demand. On the one hand, they could increase aggregate demand, as lower-income workers tend to have higher marginal propensities to consume. On the other hand, they may reduce employment and thus aggregate demand. As there is little empirical evidence for the latter proposition in the international and national literature and because of modest inflation expectations, I would have rejected the idea of freezing the minimum wage. Australia�s minimum wage is unlike the ones in the UK and US. Minimum wages exist in many industries and have a wide range, affecting almost 40% of Australian workers directly and indirectly. A large proportion of Australian workers - around 1 in 6 - will be directly affected by the minimum wage increases offered by the FWC, many of which are low-income earners. To support Australia�s economic recovery, it is critical to keep consumer spending high in general, but specifically of low-income earners who are more likely to spend their income gains. This could compensate for aggregate demand reductions associated with closed borders and a collapse of international tourism.


Jeffrey Sheen	Strongly agree	8	We have had large and unusual negative shocks to both aggregate demand and supply. Fiscal subsidies and monetary policy expansion have helped to maintain disposable income. But an increase in the minimum wage will make it harder for employment to recover from the supply shock. JobKeeper would moderate the effects of a higher minimum wage, but it is only temporary and does not cover all jobs. The minimum wage plays a vital role in Australia�s successful social compact, but now is not the time to raise it.


Hugh Sibly	Agree	8	The proposition is almost certainly true as stated. Following the lock-down many businesses will be financially fragile, and lower wage bills will decrease the likelihood of failure. Furthermore, as economists usually argue, a lower wage encourages sound firms to hire more staff, though this effect may be small in the aftermath of the lock-down. Nonetheless I do not think freezing minimum wages is the appropriate policy. The impact on this policy will be on the most vulnerable workers, who have already carried much of the burden of the response to the pandemic. A more satisfactory policy would be to offer businesses targeted wage subsidies, such as elimination or reduction in payroll taxes. This would have a similar effect on employment and business survival as a wage freeze, but would spread the burden more evenly across the community (as it would ultimately be paid for by some form of tax increase).


Nigel Stapledon	Agree	9	While empirical studies of various quality have tended to cloud the issue, the idea that a higher minimum wage would not displace jobs particularly in the current environment is surely not contested by any serious economist.


Julie Toth	Agree	9	"A temporary freeze in the minimum wage is not as unusual or drastic as it sounds. The precursor to the Fair Work Commission froze the minimum wage (and award increases flowing from it) in 2009, in response to the disruptions of the global financial crisis. It compensated for this with larger increases in 2010. The current crisis should easily meet the legal criteria for �exceptional circumstances� under the terms of the Fair Work Act, which allows for a delay in deciding and/or paying an increase. This would be appropriate because: 1. Jobkeeper and other emergency measures implemented by Government are aimed squarely at reducing the cost of keeping people employed and therefore reducing the risk of unemployment. This Government support is crucial to the private sector right now. The ABS estimates that as of 22 May, 72% of all Australian businesses have experienced reduced revenue, 53% have cut their work hours and 24% have cut their staff numbers. Three quarters of businesses are already accessing government support, including wage subsidies (55%) and/or other supports (38%). 20% of all workers told the ABS they are eligible for Jobkeeper. An increase in the minimum wage in the short term would run counter to these widespread emergency policies and weaken their effectiveness. 2. Even with this emergency support, unemployment and underemployment are high and rising. The RBA and Treasury expect the unemployment rate to rise to 10% in coming months. Raising the minimum wage in these circumstances could push even more people into unemployment and underemployment, if employers respond to the rise by cutting paid work hours further in order to pay for it. With 72% of businesses experiencing falling revenue, there is little ability for businesses to cover a pay rise in any other way. In these circumstances, other policy tools are a better fit for assisting people who have lost their income and are falling through the cracks. 3. Headline and underlying inflation are extremely weak at present. Indeed, the RBA and Treasury are expecting inflation to turn negative in Q2 of 2020, due to weak demand and falling oil prices. This means that a temporary wage freeze is not especially terrible, in real income terms. 4. The flat-rate pay structure of Jobkeeper ($1,500 per fortnight or $750 per week per employee, regardless of actual work hours or wage level) means that people who have kept their jobs, who are eligible for JobKeeper, and who earn less than $1,500 per fortnight are receiving an income boost for at least 6 months. Australia�s minimum wage is currently $19.49 per hour, or $740.80 for a full-time adult employee working 38 hours per week. This means that all full-time minimum wage workers who are eligible for JobKeeper are receiving an income rise of $9.20 per week (1.2%) until September, regardless of the hours they are currently actually working. For those who normally work part-time on low wages (e.g. students in part-time retail and hospitality jobs), the temporary income boost from Jobkeeper can be substantial; for example a person who normally works for 20 hours per week at minimum rates ($389.80 before tax and adjustments) will receive $750 per week until September, regardless of the hours actually worked. "


Rachel ViforJ	Agree	8	The level at which the minimum wage should be set has remained a contentious issue for policymakers. Central to the policy dilemma is the extent to which increases in the minimum wage might reduce the demand for labour. Australia is likely facing a prolonged period of economic recovery with high unemployment rates for the foreseeable future. Hence, policymakers should be wary that raising the minimum wages may potentially further depress labour demand and offset efforts to reduce the unemployment rate in a weak economic environment. Concerns regarding these trade-offs are less relevant under strong economic conditions. Unfortunately, the current economic reality is a sombre one, so the priority should be assisting people to return to work , before consideration can be given to raising the minimum wage. It is also worth noting that unemployment is associated with substantially worse life satisfaction and financial prosperity outcomes than those working in minimum wage jobs. Raising the minimum wage may also lead to relatively small improvements in disposable incomes due to the gradual withdrawal of income-tested welfare benefits that usually accompany wage rises for low-income earners.


Elizabeth Webster	Agree	9	The economy is likely to shrink over the next year, and as such all income recipients should expect to take a reduced income -- profits as well as wages. Although the wage share of total income has been low in recent years, this is not the time to address this issue. Instead it is a good time to scrutinise the payments of under award wages by some employers and improve the quality of Australian wage integrity institutions.