Wednesday, 8 July 2009

No minimum wage change. The last gift from Work Choices.

Not that they'd admit it but the government got a huge gift from the Fair Pay Commission with its decision to maintain the minimum wage rate at $544 per week.
The Australian Fair Pay Commission has decided not to raise the minimum wage rate above its current level of just under $544 a week, citing the need to halt further job losses.

Around 1.3 million workers are affected by the commission's decision, which has disappointed unions who had been pushing for a $21 a week rise.

The wage freeze, which leaves the hourly rate at $14.31 has also not pleased the Federal Government.

Announcing the decision in Melbourne today, commission chair Professor Ian Harper said it was one of the most difficult the commission had to make.

But he said the move against any wage increase was taken to stem the tide of further job losses, with forecasts showing that unemployment will hit 8.5 per cent next year.

"In the current environment, the ability of employers to offer sufficient work has been curtailed and there is a heightened risk that an increase in minimum wages would further reduce employment and working hours," he said.

"This year's wage setting decision is primarily intended to protect jobs, and importantly, support a stronger recovery in employment as the economy picks up."
Increasing the effective minimum wage (the real cost of hiring someone and paying the minimum rate including on costs), which the union's $21 per week claim would have done, can have no other consequence than to reduce employment.

At a time when unemployment is increasing - the ANZ bank's jobs index is down 50% in just 6 months - and the effects of the government's ridiculous cash handout wear off it would be completely irresponsible to grant a minimum wage increase.

As Shawn Ritenour wrote for in 2004:
We have already seen that every effective minimum wage will lead to some amount of unemployment. It should surprise no one that helping to usher the lowest skilled workers out of a job does not make them more wealthy. The effect is just the opposite of what apologists for the minimum wage assert. People who are poor because they have few employment options are not made better off by reducing what options they have. As you remove employment possibilities for those harmed the most by raises in the minimum wage, their incomes fall, and they will tend to become more poor, not less.

The bad news does not stop here, however. Those who are either laid-off or not hired to begin with are not shunned by employers because they are chock full of employable characteristics. They are left without work, precisely because they do not have the skills that allow them to contribute more to the firm and thereby earn a higher wage.

Not only does the minimum wage harm the poorest of the working poor immediately, but it also sets them on a lower income trajectory over their lifetime. Many of the skills making them attractive to employers in the future are those disciplines learned on the job. If the minimum wage is set above the market wage, it will take the lowest skilled workers longer to find employment initially. This does not help them in the least. They are hurt by the minimum wage and that hurt takes awhile to go away. Because it takes longer for them to land their first job, they are delayed in developing the work ethic and job skills that make them more attractive to present and future employers. The poor get poorer, not because the minimum wage is too low, but because it is above their market wage.
The deputy prime minister, Julia Gillard, followed the company line:
Workplace Relations Minister Julia Gillard has described the decision as disappointing.

"In our submissions we asked the Australian Fair Pay Commission to award a considered pay rise to low-income Australians who rely on a federal minimum wage, we did say we didn't want to see real wages for those low-income Australians cut," she said.

"Obviously the Fair Pay Commission has determined a different path and we do view that as disappointing."
The Fair Pay Commission was a part of the previous Howard government's Work Choices program that aimed to increase flexibility and productivity in the market. In its last act before being replaced by the Labor government's new commission it has gifted the government a lower unemployment rate in 6 months than would have otherwise been the case. Given that there's a lot of talk about an early election it was important for the government to ensure no rise in the minimum wage rate and, consequently, unemployment.

Labor can blame the instrument of the previous government while the unions can do the same. It's a perfect situation for them.

Naturally, there are nitwits in the media who don't understand the real impact of minimum wages on employment, as evidenced by this heart-wrenching article by Catherine Best in the Sydney Morning Herald:
Loy Kong is a typical low-income earner.

She works full time at a Melbourne blinds factory for $14.31 an hour.

By the time she pays the mortgage, bills and costs associated with raising two teenagers there is not much left.

"Because we work hard, we should get more money, good money ... because it's getting very hard."

Ms Kong is one of 1.3 million Australians who learned on Tuesday their pay packets will not be any thicker this year.

She will be remain on a weekly income of $543.78 until at least January, when Fair Work Australia reviews the minimum wage.

"It's very bad news for us and our life's going to be very hard because we have a mortgage to pay and children to send to school," she said.

Ms Kong has worked for the factory at Bayswater, in Melbourne's southeast, for seven years.

She has had no luck finding a higher paid job and cannot quit because the mortgage has to be paid.
Ms Kong did not have the skills over the last 7 years - despite the strongest employment market in Australia's history - to gain a better paying job.

Is that due to 1) minimum wage rates being too high, 2) minimum wage being too low, or 3) her lack of skills that would ensure her a better job?

Does she understand that an increase in the minimum wage may actually see her out of a job because her skills can no longer be supported at that wage level?

The reality is that the vast majority of minimum wage earners are the tertiary wage earner in a household. i.e. their parents earn more than they do.

Within just one year nearly everyone who started on the minimum wage will be earning more than it.

When I was teenager and at university I worked for minimum wage. My parents both worked and I was the tertiary wage earner in the house.

Most of you people reading this were in similar situations.

How many of you still earn minimum wage?

About none.

The statist view that unions and others put forward about the effect of minimum wage on families is not borne out by reality.

It's good rhetoric, though, and it works politically, which is why immigrant and youth unemployment is so high in all countries that have a minimum wage system.

(Nothing Follows)


Anonymous said...

But this is effectively a minimum wage cut. This decision will cut the living standards of those million+ Australians living on the minimum wage. There is no justification for cutting the real minimum wage. It will not save jobs. A CPI increase in the nominal minimum wage of $13.60 per week would've been fair and affordable for employers.


Jack Lacton said...


You seemed to have missed the whole point of my post.

There are not a million plus Australians living and supporting themselves on the minimum wage.

Anonymous said...

It is astounding how statistics from around the world repeatedly demonstrate that monkeying with the minimum wage actually harms the most vulnerable and least hire-able unskilled parts of the population. And yet the libruls continuously whine and agitate about it.

There is a surprisingly weak linkage between those working at the minimum and the level of poverty in their family. In the US, only 17% of those who earn the minimum come from poor families. 34% come from families that earn 3 times the poverty line.

A very small percent of those earning the minimum today will be earning the minimum tomorrow. Those are entry level jobs. And an employer could be forgiven for keeping a promising teenager when the minimums are raised and letting go the older less skilled worker.

The minimum wage in the US is scheduled to go up 11% this Summer. That is fully expected to cause over 300,000 young adults (mostly minorities) to lose their jobs....on top of the job losses due to the recession.

The truth is, minimum wage issues have nothing whatsoever to do with raising the living standards of those earning it. It has everything in the world to do with labor union contracts.


Ellen K said...

First, no real grown up should be making just minimum wages. Only those who are addled with addictions or who repeatedly break the law end up at that point. So the laughable part about minimum wages needing to be a "living wage" is ludicrous as people stuck at that level probably could not handle more money without breaking the law. In addition, as I have said before, higher wages translate to higher costs. And the corporations are not simply going to absorb those. Instead they will be passed on as higher costs to consumers, which as usual, nails the middle class when they are already struggling.It's just like the old Roadrunner cartoons where the coyote is hanging over the cliff and someone hands him an anvil.

cash gifting leads said...

I think there is no justification for cutting the real minimum wage.