The release of the Productivity Commission’s issues papers into the workplace relations framework is set to reignite the industrial relations (IR) debate. And given the minimum wage looks to be in the commissions’ firing line, low paid workers should hope that along with productivity and competitiveness, terms that are often used when talking about IR, inequality is also given priority.

IR debates invariably affect lower paid workers more than those on higher wages. Low paid workers are more likely to be on the minimum wage and more dependent upon penalty rates – and these two issues are always in the firing line.

So it is worth noting that any cuts to the wages of lower paid workers will have a much bigger impact than it did in the past because there are more low paid workers now than in the past.

The OECD records that in 2002, just 13.8% of Australian workers were low paid (defined as earning less than two-thirds the median wage). This was well below the OECD average of 17.2%. But by 2012 while the OECD average had fallen to 16.3%, the percentage of low paid Australian workers had risen to 18.9% – the biggest rise in the OECD over that period:

These numbers put into sharp relief the impact any changes to the minimum wage will have on Australian workers.

And while business leaders suggest our high minimum wage hurts our competitiveness with other nations – because our labour costs are higher, the value of Australia’s minimum wage has fallen significantly in the past decade:

In the 10 years from 2003 to 2013, the minimum to median wage ratio has fallen the most of any OECD nation. If our high minimum wage is hurting our competitiveness, it is doing so much less now than it did in the past.

Indeed since 1985, the ratio of the minimum to median wage in Australia has fallen significantly. In the 1980s the minimum wage was around 65% of the median wage, now it is around 54%:

Is this a good thing? Those who argue a high minimum wage discourages employment because it costs too much to hire such workers would argue yes. But those who would point to that growing number of Australians earning “low pay” would worry that we are in danger of breeding an American like number of “working poor.”

There is also very little evidence that our minimum wage affects our unemployment. Certainly charting the rates of the minimum wage across the OECD with each country’s unemployment rate shows almost zero relationship.

A very high minimum wage would likely discourage employers from hiring someone, but suggesting our current minimum wage of $16.87 an hour is at that level of discouragement is difficult to prove – and more likely to involve political and ideological assumptions rather than evidence.

Moreover, suggestions a low minimum wage gives more people a start in the labour force doesn’t hold up well to the facts.

Two studies in 2006 and 2010 by the National Institute of Labour Studies (NILS) found that while younger people are more likely to be earning the minimum wage, overall, the difference of the age and other demographics characterises of minimum wage workers is not greatly different from the overall workforce.

Thus for many workers, the minimum wage is not transitory wage they earn when young before going onto a higher paying job – it is their wage for a long time.

And interestingly, given our ageing population the only age group other than youth who have more workers on minimum wage than those who earn well above it are those over 55 years of age:

Moreover, the NILS study in 2010 found that “approximately 22% of employees” were on wages “just above or below” the minimum wage.

Do we wish to follow the lead of the US, which for example from 1981 to 1990 kept the federal minimum wage unchanged? During that time, the evidence clearly shows that US inequality exploded, and has continued as the minimum wage has failed to keep up with inflation.

From the end of the second world war until the start of Ronald Reagan’s presidency in 1981, the ratio of incomes between the top 10% and the rest of the population stayed flat.

The income of the top 10% in 1980 was around 4.44 times that of the average of the rest of the population – the same level it was in 1947. But by 1990 it was 5.47 times. Now it 8.33 times:

Now clearly this is not due purely to the US workplace relations system. The taxation and welfare system also plays a major role. But the importance of the minimum wage was highlighted in President Obama’s State of the Union speech last week.

While Obama notionally focussed on “middle class economics”, in reality he mostly talked about the conditions of those on low incomes. He referred to the 43 million workers who were not entitled to sick leave, and he repeated his call for the Congress to raise the federal minimum wage, arguing “If you truly believe you could work full-time and support a family on less than $15,000 a year, try it.”

One thing we should not want in this country is for our level of working poor to approach that of America – especially if, as looks to be the case, the minimum wage is more than just a floor wage for the low skilled or a transitionary wage for the young, but one which a large proportion of Australians earn – and earn for long period of their working life.

Inequality always needs to be at the forefront of discussion about economics. When it is left on the sidelines, as America over the past 30 years shows, the rich get richer and those in the middle get poorer.

We need to ensure those who earn the minimum wage can transition to a higher wage, but this is not done by lowering it – it will only hurt those already on it.

And in any debate on workplace relations we need to be very mindful that we don’t seek to follow the US where the desire to cut labour costs has led to the value of minimum wage falling far behind inflation and more and more workers finding themselves being paid low wages.

The US is now at the point where that when its President speaks to the middle class, he is including the very lowest paid. And that is not something we should wish to emulate.