Retailers have warned that staff will have to be sacked in the wake of a decision to raise the minimum wage by $18.70 a week.

Unions, however, say the increase of 3 per cent from July 1 – a rise to $640.90 per week – will not be enough to help workers cope with extra costs stemming from the federal budget.

The decision by the nation’s industrial umpire, the Fair Work Commission (FWC), will directly affect around 1.5 million Australians on award wages.

FWC president Justice Iain Ross said there had recently been almost no growth in the real value of award wages while other employees had enjoyed substantial pay increases.

“The deterioration in the relative living standards of award-reliant workers, the needs of the low-paid, the recent widespread improvement in labor productivity growth, the historically low levels of real unit labor costs, and the absence, in aggregate, of cost pressures from the labour market, are all factors favouring a real increase in minimum wages,” he said.

One moderating factor was the 0.25 per cent increase to the superannuation rate to apply from July 1.

Read the Fair Work Commission’s Annual Wage Review decision summary.

The ACTU had been pushing for a weekly rise of $27, but employers said they would not be able to afford an increase of anything more than $8.50 a week.

Business groups have criticised the decision, with the Australian Industry Group saying it will put more pressure on “struggling” employers, particularly in the manufacturing, retail and tourism sectors.

“Many industry sectors and particularly those exposed to import competition are experiencing very tough business conditions,” AiGroup chief executive Innes Willox said in a statement.

And the Australian Chamber of Commerce and Industry (ACCI) said it would “destroy” job opportunities.

“There is no generosity in raising wages to the point where people can’t find work when they need it,” ACCI chief executive Kate Carnell said in a statement.

Unions warn of class of ‘working poor’

Retailers have warned that it will “stress” and “damage” businesses already dealing with sluggish retail figures and lower consumer confidence.

Australian Retailers Association executive director Russell Zimmerman says the decision will prompt many businesses to sack staff.

“The retail industry is more reliant on pay scales than any other industry, and also suffers a highly disproportionate effect in minimum wage increases … due to deregulated hours and penalties across all retail awards,” he said in a statement.

But unions are worried the widening gap between the minimum wage and average earnings means Australia could go down the same path as the US and create a class of “working poor”.

ACTU secretary Dave Oliver said the decision was “particularly unfair” given the National Accounts figures showed stronger-than-expected economic growth.

“Hardworking Australians are not benefiting from the strong economy and they don’t stand to benefit from the federal budget,” he said.

Rise ‘barely keeps pace with inflation’

The United Voice union, which represents many low-wage workers, says the rise is not enough.

Acting national secretary David O’Byrne says with new costs like GP co-payments and an increase in fuel prices, the poorest paid workers will suffer.

“Every time they go to a doctor, every time they put petrol in their car they are being hit by this Federal Government with increased cost of living,” he said.

“This minimum wage decision does not only not deal with that, it barely keeps pace with inflation.”

Opposition employment spokesman Brendan O’Connor says the warnings of job losses is “always” put forward by employer groups.

He has welcomed the decision but says it does not take into account extra cost-of-living pressures associated with the federal budget.

“It won’t be able to mitigate the impact of the measures of the budget on these low-paid workers – the tax on visiting a doctor … the tax you have to pay when you pick up your medicine when you visit a pharmacy means the pressure on low-income families is going to be very, very difficult indeed,” he said.

“The budget measures will soak up the increase and will in many cases exceed the increase.”

The Federal Government had urged the commission to consider that Australians would be netting an extra $550 a year when the carbon tax was abolished – though its repeal is yet to pass the Senate.

Employment Minister Eric Abetz has put out a statement saying the Government “recognises” the decision.

Last year the minimum wage rose by $15.80 a week.