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Raising minimum wage reduces inequality, stimulates economy

Media Release
Adam Bandt 16 Apr 2014

Greens Deputy Leader and Employment spokesperson Adam Bandt MP today said that the Fair Work Commission has a chance to act on income inequality. 

“The IMF, the OECD, the World Economic Forum and Australia’s Treasury have all made clear that tackling growing income inequality should be a high priority for policy makers because it poses a real risk to growth, prosperity and political stability,” said Mr Bandt.  

“The Fair Work Commission has the opportunity before it to tackle one of the most worrying risks to our prosperity, that of growing income inequality.  

“By raising the minimum wage, the FWC has a chance to lift more Australians out of poverty, reduce the number of people who are ‘working poor’ and make the country a more egalitarian place.

“Raising the minimum wage is an excellent way of stimulating the economy and most Australians recognise that a more egalitarian country is a good thing. 

“Whenever a minimum wage rise is due, some commentators revert to ‘Chicken Little’ mode, as the Abbott Government has done, scaremongering that the sky will fall in if the minimum wage goes up,” said Mr Bandt. 

The RBA’s most recent board meeting minutes say that future growth after the mining boom is likely to be in the services industry. 

“Tony Abbott’s failure to pay people in the growing services industry a living wage, while at the same timing cutting penalty rates, risks nipping the prospects of growth in our services industry in the bud,” said Mr Bandt. 

In the US, 600 eminent economists (including a number of Nobel laureates) recently wrote to President Barak Obama urging him to raise the minimum wage.  

“It is notable that the 600 economists who wrote to President Obama urging him to raise the US minimum wage said that minimum-wage increases help stimulate the economy and “have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market,” said Mr Bandt.  


Wall St Journal: “IMF Warns Inequality Is a Drag on Growth" : “The world's top economic institution is sounding the alarm about a growing chasm between rich and poor, warning that rising income inequality is weighing on global economic growth and fuelling political instability.”

World Economic Forum on income inequality: In its Global Risks 2014 report, the World Economic Forum identified income inequality as the fourth highest risk to economic prosperity, warning that “growing economic inequality and weakening social cohesion within countries, [threatens] political stability. Globalization has left some countries behind and has been associated with rising inequality between and within countries. This is augmented by restrictions on migration and a failure of policies at the national and global levels to promote a more inclusive system. Together, these factors render poor people and poor countries vulnerable to systemic risks.”

Australia’s Treasury on income inequality: “The OECD’s conclusion in Divided We Stand was that ensuring equal access for all of the population to high quality public services such as education, health and family care will help to reduce inequality and provide equal opportunities of personal and professional development for all citizens. This suggests that some refocusing of the debate is required away from those at the very top of the income distribution towards those at the very bottom. Measures of income inequality do not do this well — lying beneath the averages are households that experience greater disadvantage than others. The Australian Social Inclusion Board estimates (using a variety of indicators) that 5 per cent (around 640,000 people) of Australians aged between 18 and 64 have multiple disadvantages. A greater focus on understanding and tackling multiple and entrenched disadvantage is critical in terms of improving overall wellbeing in Australia, notwithstanding that sustained economic growth and strong real income growth across the spectrum has delivered a great deal to Australians in recent years.

OECD on income inequality: “The risks perceived to be most interconnected with other risks are macroeconomic – fiscal crises, and structural unemployment and underemployment – with strong links between this macroeconomic risk nexus and social issues, such as rising income inequality and political and social instability. The failure of global governance emerges as a central risk that is connected to many different issues. Mapping perceived interconnections between risks helps to understand the potential transmission channels between them.” 

When the OECD launched its ‘Divided We Stand’ report into income inequality, OECD Secretary-General Angel Gurría said “The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise.”

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