Australia's 1.5 million lowest-paid workers will be awarded an $18.70 a week wage rise as the Fair Work Commission tries to reduce inequality in earnings.
The 3 per cent pay rise, lifting the minimum wage to $640.90 a week, or $16.87 an hour, will affect people on the minimum wage and award-rate workers, including Australia's lowest-paid cleaners, retail and hospitality staff, childcare workers, farm labourers and factory workers.
Fair Work Commission president Iain Ross said the outlook for contained inflation growth and relatively low aggregate wages growth "provide scope" for increasing the minimum wage without inflationary consequences.
"There are no signs of outer pressures arising from the labour market. There is no evidence of unusual levels of business failure," he said.
Mr Ross said inequality in Australians' earnings was rising, with average earnings and bargained pay rates outstripping the growth in minimum wages.
"This has reduced the living standards of award-reliant workers and reduced the capacity of the low-paid to meet their needs," he said.
Trade unions have argued for a $27 weekly increase from $622.20 to $649.20, an increase of 3.9 per cent – triple the amount proposed by Australia's largest employers' lobby.
The Australian Council of Trade Unions said the current minimum wage was more than 55 per cent lower than the average weekly earnings.
But the Australian Chamber of Commerce and Industry, in its submission to the annual wage review hearing, urged a 1.25 per cent pay rise of just $8.50 a week, less than half the projected cost-of-living increase of 2.7 per cent.
In its submission, the ACCI states economic growth is below trend, labour market conditions are weak, job opportunities for the low paid are diminishing and that "there are heightened risks to growth that the minimum wage panel must take into consideration". Chief operating officer John Osborn said an unreasonable rise would result in job losses and fewer jobs.
Justice Ross said the economic outlook was strong, with GDP growth expected to ease in 2014-15 before increasing to just below trend in 2015-16.
Employment growth is expected to rise in 2014-15, and the jobless rate is expected to increase only slightly, he said.
But the commission's expert panel said high levels of part-time and casual workers, and the high youth unemployment rate, were causes for concern.
The minimum wage rose by 2.6 per cent in 2012-13.