The calculations were generated by the ANU's soon-to-be-released policy simulation model PolicyMod, which provides an important insight into one of the most fiercely contested area of industrial relations, the minimum wage.

Economists warn employers may be forced to offset large potential increases in the minimum wage by reducing hours worked. In other words, the hourly rate may go up, but annual income stagnates or potentially falls.

"It's a very poor instrument for redistributing money from the rich to the poor. If you want to do that, you have the tax and transfer system," said Professor Wooden, director of Melbourne University's highly regarded annual household, income and labour dynamics (HILDA) survey.

Professor Wooden – who also authored a 2010 research paper entitled An Unfair Safety Net – said that unlike most advanced economies, the Fair Work Commission's minimum annual wage decision affects about 24 per cent of workers, whereas elsewhere it is between 2 and 4 per cent.

"If you think that increasing the minimum wage will improve poverty and increase income to people who needed it the most, you'll be sadly disappointed. It'll go to people across the income distribution," he said.

Coalition under fire

The issue erupted last week when Workplace Minister Michaelia Cash struggled on radio to justify the government's submission to this year's Fair Work Commission minimum wage review, which included the arguments made by Professor Wooden and others, including previous Labor governments in their advice to the commission that many recipients of the minimum wage are in higher-income households.


The matter is causing problems for the Coalition, which is already under fire for supporting the commission's recent cuts to penalty rates, while also seeking to reduce welfare benefits for working-age families to fix the budget.

However, the modelling provided to The Australian Financial Review by ANU associate professor Ben Phillips supports the government's position that most of the benefit from a minimum wage rise accrues to middle- and upper-income families.

About 13.5 per cent of people who are believed to be receiving the minimum wage are in the wealthiest 20 per cent of households – a figure that grows to almost 38 per cent when the next 20 per cent of households are included.

Only 7 per cent of people on minimum wages are among the poorest 20 per cent.

The appeal to alleviate poverty through minimum wage rises is a highly vexed issue if those benefits largely flow to higher-income families, given warnings from many economists such as Ross Garnaut that there needs to be a depreciation in real wages to keep the nation's economy globally competitive following the resources boom, weak productivity growth and lower commodity prices.

With inflation tracking well below the Reserve Bank of Australia's 2-3 per cent target range, there is equally far less labour market pressure for higher wages, which are still growing faster than the consumer price index.

"We don't know what the impact of a minimum wage increase would be in terms of employer demand – it is possible they could reduce their hours," Associate Professor Ben Phillips said.

"On the supply side, it may be expected that some would be encouraged to increase their hours while some, through the 'income effect', may actually reduce their hours.

"Answering these questions is not straightforward and may change through time as the economy fluctuates."