This paper considers the implications of the decision of the Australian Industrial Relations Commission in the April 1997 wage case (the ‘Living Wage Case’) for wages policy. The recent history of wages policy in Australia is analysed in terms of competing goals for wages policy and the changing priorities for these goals. The Living Wage Case decision is a continuation of developments in the Australian labour market that worsen the relative income position of the low paid, tend to create a two-tier wage structure, and worsen the prospects for reductions in unemployment because responsibility for the control of wage based inflation has been given to restrictive monetary policy.

The Australian Industrial Relations Commission (AIRC) brought down the first stage of the ‘Living Wage’ Case decisions on 22 April 1997. For the first time in nearly 30 years the decision was split. This article analyses the economic rationale for both majority and minority decisions and argues that the majority decision was overly cautious and conservative in its assessment of the economic constraints on the Commission’s capacity to award a pay increase to low paid workers.