A Labor government would change workplace laws to ensure the minimum wage for Australia’s low-paid workers is a “living wage”.

Federal Labor leader Bill Shorten said, in announcing the election policy on Tuesday, the living wage policy would directly benefit about 1.2 million Australians.

“A living wage should make sure people earn enough to make ends meet, and be informed by what it costs to live in Australia today – to pay for housing, for food, for utilities, to pay for a basic phone and data plan,” Shorten said.

Under the first stage of the plan, the Fair Work Commission would be asked to determine what a living wage should be.

In doing so, the commission would take submissions from community organisations, business representatives and unions.

It would also consider Australia’s social wage – the amount of tax people pay, and any family tax benefits or other transfers they receive.

The second step would be for the Fair Work Commission to consider the time frame over which the increase should be phased in, taking into account the capacity of businesses to pay, and the potential impact on employment, inflation and the broader economy.

Further public submissions would be taken on this before the commission determined a fair and responsible phasing in of a living wage.

The first living wage case would take place as part of the next annual wage review after the legislation passes parliament, with wage increases to be phased in from the July 1 after that review.

The living wage would not automatically flow through to award wages, but rather only apply to those receiving the national minimum wage.

There would still be an annual wage review to determine award wages.

“Labor believes in a fair day’s pay for a fair day’s work and a living wage is fundamental to achieving that goal,” Labor workplace spokesman Brendan O’Connor said.

Cabinet minister David Littleproud warned Labor’s policy could cost people jobs through higher wage costs for business.

“It’s all shiny and it all sounds good but what it means is someone is going to have to pay for it,” he told reporters in Hobart on Tuesday.

“At the end of the day, it’s going to cost someone a job and it could be you.”

Australian Council of Trade Unions secretary Sally McManus welcomed the announcement as a fantastic first step in addressing ‘broken wage rules’.

“The re-establishment of a living wage would ensure that full-time work means a comfortable life and enough money to live on, not simply to avoid starvation,” she said.

Under the coalition government, the minimum wage has gone up each year at a faster rate than inflation and wage growth across the economy.

With AAP.