C.2 Scenario 2: Moderate growth in minimum wages In the moderate wage growth scenario, it is assumed that the real growth in wages is one percentage point lower than in scenario 1. This illustrates the possible effects of moderating the growth in award wages on employment, incomes and production. It is assumed that award wages still grow in real terms, thereby improving the living standards of those on award wages, but that the extent of real growth is moderated. In recent years, Australia’s national minimum wage has remained relatively stable as a proportion of the national median wage (figure C.3). This is projected to continue in scenario 1. In the moderate wage growth scenario, it is assumed that the minimum wage declines as a proportion of the median wage for the five years between 201718 and 202122, before returning to the trend projected in scenario 1 from 202122. Figure C.3 Trends in minimum wage as a proportion of median wage, Australiaa a Based on adult national minimum wage to the median of full time adult ordinary weekly cash earnings. Sources: OECD Stat database; Productivity Commission estimates based on the VUMRWR model. The variables shocked and the associated endogenous variable used in the dynamic modelling of the minimum wage scenario is shown in table C.3. In the moderate wage growth scenario, nonaward wages are endogenous throughout the simulation. But in the five years from 201718 to 202122, award wages are assumed to grow in real terms by one percentage point less than in scenario 1. From 202122, it is assumed that the expert panel sets award wage growth equivalent to the growth of nonaward wages. This is achieved in the modelling by allowing award wages to grow in line with average wages.
C.2 Scenario 2: Moderate growth in minimum wages In the moderate wage growth scenario, it is assumed that the real growth in wages is one percentage point lower than in scenario 1. This illustrates the possible effects of moderating the growth in award wages on employment, incomes and production. It is assumed that award wages still grow in real terms, thereby improving the living standards of those on award wages, but that the extent of real growth is moderated. In recent years, Australia’s national minimum wage has remained relatively stable as a proportion of the national median wage (figure C.3). This is projected to continue in scenario 1. In the moderate wage growth scenario, it is assumed that the minimum wage declines as a proportion of the median wage for the five years between 201718 and 202122, before returning to the trend projected in scenario 1 from 202122. Figure C.3 Trends in minimum wage as a proportion of median wage, Australiaa a Based on adult national minimum wage to the median of full time adult ordinary weekly cash earnings. Sources: OECD Stat database; Productivity Commission estimates based on the VUMRWR model. The variables shocked and the associated endogenous variable used in the dynamic modelling of the minimum wage scenario is shown in table C.3. In the moderate wage growth scenario, nonaward wages are endogenous throughout the simulation. But in the five years from 201718 to 202122, award wages are assumed to grow in real terms by one percentage point less than in scenario 1. From 202122, it is assumed that the expert panel sets award wage growth equivalent to the growth of nonaward wages. This is achieved in the modelling by allowing award wages to grow in line with average wages.
workplace-relations-cge-modelling.docx