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The ‘living wage’: What it is and what you need to know about it

Tens of thousands marched for better work conditions and higher wages in Australia on April 10, bringing the city of Melbourne to a standstill, ahead of national elections in May. (Photo by William WEST / AFP/Getty Images)

The federal election has brought wages and the cost of living to the fore and it’s reignited debate about something called the ‘living wage’.

Trade unions have been busy this year with campaigns pushing for the ‘minimum wage’ to be boosted to a ‘living wage’, and opposition leader Bill Shorten has pledged to “act immediately” to give minimum wage workers a pay rise from day one of government if Labor wins.

But first things first: what does a ‘living wage’ mean, exactly?

Well, in theory it’s not that different to the minimum wage – both set the ‘floor’ for the minimum income employees ought to be legally paid, according to two University of Melbourne academics in a piece for The Conversation.

But a living wage would be set higher than the minimum wage, and would also be fixed to other measures of living standards, such as average weekly earnings, so that factors such as the cost of living or inflation would be considered.

“Essentially, while the minimum wage sets a bare minimum, the living wage aspires to be a socially acceptable minimum,” the academics said.

“Typically, this is seen as a level that keeps workers out of poverty.”

Here’s a quick crash course on the living wage, courtesy of the Australia Institute’s Centre for Future Work:

1. The minimum wage is not enough

The Fair Work Commission, which determines the minimum wage, considers factors such as profits, inflation, employment trends and inequality – but it doesn’t take into account the costs of running a household.

Put simply, the minimum wage is set without explicitly considering whether it’s sufficient to cover basic living costs.

At present, the minimum wage for adults is set at $18.93 an hour, which comes to $719 a week, but that assumes they work a full 38-hour schedule, the Centre for Future Work points out.

The reality is that many low-income employees can’t get enough hours of work and likely live in poverty.

2. The minimum wage would have to reach $23 an hour to be a living wage

The OECD sets the poverty line at 60 per cent or less of the national median income, which puts Australia’s current minimum wage at a woeful 54 per cent, the SBS reported.

Using this ratio, the minimum wage would have bump up more than $4 an hour, the Centre for Future Work said.

Other ways of calculating the minimum wage would be to factor in all the actual costs of operating a household, which – on top of the basic necessities of food, clothing and shelter – would include expenses needed for a “full and healthy participation in society”, such as internet, transport, school supplies, a minimum amount for entertainment, insurance.

“There are no luxuries in this budget – just a basic, decent standard of living consistent with modern social expectations.”

3. Claims that Australia’s minimum wage is higher than other countries don’t give the full picture

Sure, in real dollar terms, Australia’s minimum wage looks higher than other countries – but don’t forget that Australia’s living costs are also much higher compared to other nations.

Using the ratio mentioned above, Australia’s minimum wage ratio sits below France, New Zealand, Portugal, and Turkey.

4. New Zealand is putting us to shame

The median wage ratio of our Kiwi neighbours is already higher than ours, but the Ardern government has been bumping it up.

Over the government’s four-year term, the minimum wage will soar by 25 per cent, the Centre for Future Work said.

5. Raising the minimum wage wouldn’t negatively affect employment

The old, simplistic argument is that raising the minimum wage would bump up prices, which would cause unemployment – but this has been debunked by a slew of studies.

Our own Reserve Bank has also said that recent increases to the minimum wage hasn’t negatively affected employment.

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