The Fair Work Commission has ruled that minimum wage earners will get a $40 a week pay rise, a decision that was supported in advance by the Albanese government.

The decision will see the hourly pay rate rise from $20.33 to $21.38. The decision impacts 2.7 million workers on the national minimum wage or awards and came into effect on 1 July.

ACTU Secretary Sally McManus welcomed the increase. She said the lack of wage growth has been and still was “a critical issue for our economy and we need concerted action to address it”.

“Our current system means that despite low unemployment, high productivity and record profits, labour’s share of GDP is at a record low,” she said.

“The (minimum wage) review is one tool we have to generate wage growth, but it only affects one in four workers – we need wage growth across the economy.”

Prime Minister Anthony Albanese agreed the pay rise would help prop up the economy.

“If you are on the minimum wage, you are also spending every dollar that you have. Every dollar that you receive will go back into the economy into circulation,” he said.

“It won’t go into savings, not an overseas holiday. It will go into food on the table, for kids of people on minimum wages. That is what this is all about.”