A new ruling will see low-income workers pocket more cash each week.
The Fair Work Commission (FWC) has decided to increase the minimum wage by 1.75% to $753.80 a week, or $19.84 per hour.
The rise will be staggered for different industries, based on how well they have fared through the COVID-19 induced recession.
Workers in essential services such as healthcare and childcare, which account for around 25% of the workforce, will receive the increase on July 1.
Those in construction, manufacturing and other industries will see the increase on November 1.
The worst hit industries, aviation, arts, entertainment, food and accomodation, and retail sectors, won't see the rise until February 1 2021.
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The Australian Council of Trade Unions had pushed for a 4% increase, which would have amounted to an extra $30 a week, with the announced increase well short of the 3% increase seen last year.
ACTU secretary Sally McManus said it was disappointing many workers would have to wait so long for the wage increase.
“However it is clear in the decision that this panel of experts recognise that cutting wages in the middle of this crisis would be a disaster for working people and the economy and they have rejected the arguments put by some employers to effectively cut wages by freezing the minimum wage,” Ms McManus said.
“Many of the workers who will benefit directly from this decision are the essential workers who have been getting us through the pandemic. They deserve to have their wages protected.
“The most important thing the country needs is people with money to spend and the confidence to spend it. This is how the hospitality, retail and tourism industries will get back on their feet.”
Business groups had been advocating for a wage freeze until mid-2021, in order to help those who had lost their jobs due to the pandemic find new employment.
In a recorded message, FWC president Justice Iain Ross said the pandemic had devastated jobs in Australia.
"The shock to the labour market has been unprecedented," he said.
He added the risk of a second wave meant there could be more risks to the job market ahead.
"The outlook, including the nature and speed of the expected recovery, remains highly uncertain."
In its decision the FWC said the uncertain economic path out of the pandemic led it adopt a cautious approach to the wage increase.
‘The very high level of underemployment warrants more weight being given to the potential impact of increasing minimum wages on hiring and re-employment,” it said.
“Further, in a recession, when aggregate demand is weak, the employment effects of increases in minimum wages are likely to be more significant and the capacity of employers to absorb wage increases or to pass them on to consumers in the form of higher prices is more limited."
The decision will directly affect 2.24 million workers and is expected to indirectly affect many more.
Industrial Relations Minister Christian Porter had previously opposed any substantial increase to the wage.
Australia has the highest minimum wage in the world.
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