Cross posted at Troppo
Here’s this week’s column in the Courier Mail. And here’s the devastating graph which shows how poorly correlated with poverty low wages and minimum wages are. There is almost no relation between these jobs and household income.
So, at considerable cost and while it generates unemployment, the thicket of IR regulation we have doesn’t look like it does much for equality. As the chart shows, what’s really associated with inequality is unemployment and absence from the labour market.
Anyway, the column is over the fold.
Whose side are we on?
The Government’s new WorkChoices package of IR reform will allow workers to negotiate away a range of entitlements. It will make collective bargaining more difficult. And minimum wages will probably increase more slowly.
So whose side are you on?
The problem is the two sides of the debate don’t want you to know much about the other side of the story. (In fact one side doesn’t really want you to know much about their own side of the story!)
Of course the conservatives — the unions and the ALP — have no trouble telling you what’s bad — the package will eat away at the pay and conditions of lower paid workers.
But the radicals — the Government — can’t come clean and tell you what’s good about them. Because to do so would involve first, frankly accepting that the conservatives claims are true (if routinely exaggerated) then explaining what might be good about that (I’ll tell you that in a sec).
Instead they’re working from the George Orwell manual of public relations.
Step One: Spend tens of millions of your dollars on political ads for policies which are still being refined and have not even been properly specified in draft legislation. Step Two: Remember those chains that burst asunder as the GST gave us mountain of new paperwork? Be similarly bold. Advertise this stripping away of working conditions as a raft of new “fairer” protections for workers. “Protected by law”.
So what can be said for undermining existing protections for workers? Actually quite a lot.
Surprisingly enough low paid jobs are spread almost evenly through our households, from Redfern and Ipswich to Hamilton and Double Bay. Many low paid workers are young and will be promoted into better jobs. Others have partners who are doing fine. Some are ‘doctors wives’ picking up some spare cash when it doesn’t conflict with tennis parties.
Now most economists think that job creation will respond fairly sluggishly to minimum wage falls — but we’re not sure. And if you cut too far the dole becomes more attractive than work.
On the other hand minimum wages and conditions are relatively high compared with similar countries. And alarming numbers of workers are simply unable to hold down jobs at those wages and settle for benefits.
And in my book the long term unemployment visited upon those who lose heart in the labour market is far more devastating, to themselves their families and communities, than some belt tightening by workers on minimum wages.
Tricky isn’t it?
Is there a better way? Well yes there is. We nibble away at a better approach with other policies — like retraining, job subsidies and family tax supplements — to raise worker skills, create entry level jobs and make them more attractive than the dole.
But for these policies to really work to mop up the collateral damage from stronger industrial relations regulation — as they do for instance in Scandinavia — we need to aggressively fund them.
We don’t do that. Never have.
So even though Paul Keating’s “Job Compact” — which guaranteed the unemployed training or a job — and John Howard’s “Work for the Dole” came with the usual ads to make us feel all shiny and new, they’ve always been crippled by under-funding.
The cost of the “Job Compact” was contained by restricting it to those who’d rotted on the dole for at least eighteen months. And Work for the Dole was always at least as much a symbol in the ongoing culture war as it was a piece of economic or social policy. The government spends around twice as much on sport.
But don’t fall for the line that with falling unemployment the problem is solving itself. Since 1970, and despite the last fifteen years of solid growth, the proportion of working age men without full time work has nearly tripled — to over a million! (Using men tells us more because many women prefer part time work). They’re on the dole, disability payments or part time work. And most of them are unskilled.
That astonishing change is driven by the relentless march of cost saving technology. Think word processors, internet banking and big, big machines that lay roads and dig tunnels with just a few people feeding in fuel and materials. And there’s globalisation. Our imports of manufactures are labour intensive whilst our mineral and agricultural exports are capital, resource and skill intensive.
For ten years the Government’s priorities have focused on tax cuts — with increasing emphasis on those with healthy incomes — rather than subsidising job creation and reducing the ‘effective marginal tax rates’ of sixty percent plus created by benefits being withdrawn as people move from welfare to work.
So while we enjoy the politics of taking sides for or against the IR changes, just remember how few friends those priced out of the labour market really have.
Then decide whether you support or oppose the IR changes as best you can.
I guess I’d start with a few questions Nicholas, like what’s the real source of the stats (ABS?)? why do you describe the present i/r regulations as a ‘thicket’ when the Howardian idea is to convert some 4000 agreements into some 9 million? and exactly what are you saying? that multiplying the present level of regulation to 9 million odd deals that mostly favour employers will do what to who? or that raising the minimum, low & part-time wage looks in need? or exactly what, apart from the need for better policies for the unemployed, (an idea with which I would agree)?
John Howard, the friend of the unemployed. Shhhhhh!
Oh, and I’d add that those who wish to reverse the advances made under 20th century labour law to re-install something akin to the 19th century master-servant relationship are the genuine ‘conservatives’ here, or ‘reactionaries’ is actually the better term. Don’t kid yourself.
No time for a substantial response now, but to Chris: the HILDA survey.
cs,
You’re assuming of course that 21st century workers have 19th century outlooks and are still working with steam engines and the only thing that stands between them and the dark past is current labour law.
“..or exactly what, apart from the need for better policies for the unemployed, (an idea with which I would agree)?”
What Nicholas may be asking you to consider is that Howard may understand that ‘better policies for the unemployed’ may never be politically fundable to the extent necessary, despite all the past goodwill of various politicians and parties and so he will implement the politically feasible, next best thing. In other words- Is Howard the pragmatic, practical friend of the unemployed?
observa, the answer to your last question is: ‘NO’.
tks Rob.
And I don’t think we can make much of Nicholas’s graph without more info.
In a previous thread, we discussed the definitional shift of a fair wage from one that’s sufficient to support a family, to one that’s sufficient to support an individual. Yet here we are referring to household (as a proxy for family) income as the basis for social policy.
The fact that part-time and minimum wages seem to be distributed throughout all of the income deciles shows that many low-wage jobs are the second (or third) jobs in households that already have a breadwinner.
But by cutting the minimum wage, aren’t you penalising individuals and families who rely on a low wage as their only income? It seems odd to say that because some low wage earners are just “picking up some spare cash when it doesnÄôt conflict with tennis parties”, we should cut the wages of the working poor.
As Nicholas points out, there’s not much chance that we would “aggressively fund” wage subsidies and training programs. And that’s the problem: the IR debate can’t be separated from the welfare debate, and as long as there is a Government that is ideologically opposed to welfare (by which I don’t mean Howard’s pork-barrelling), we can’t afford to abandon the minimum wage.
The minimum wage is effectively a hypothecated tax: it is a business tax that is guaranteed to be redistributed to a low-income worker. Wage subsidies achieve the same thing, but with a Government middle-man. Of course, you run the risk that the middle-man will either stop collecting taxes from his business mates, or else he’ll skim off some of the cash and leave both the business and the worker worse off than they are now.
The other problem, of course, is that it’s not just about wages. It’s as much (possibly more) about working conditions, safety, power and dignity.
CS,
I’ll wait till you address the strengths of my argument before defending what you take to be the weakness of mine.
What do you think are the strongest points of my argument?
Robert,
Thanks for your response. You argue that the minimum wages is a tax on employers in favour of low income workers. Yes it is that and if that were all it was I’d be unequivocally in favour of it (even if it involved some efficiency cost – generally I’m happy to give up quite a bit of efficiency for equity).
But here theres’s something else going on. At the same time as imposing a tax on business, IR regulation including the minimum wage also throws some people out of a job.
So, like I said in the article. That makes it tricky doesn’t it? And it means that if you support these policies (and you accept for argument’s sake that we won’t adequately fund labour market policies to mop up the collateral damage) then you have to ask yourself whose side you’re on.
I basically agree with what Nick said. It’s heartening that at least supporters of the current system like Robert are cottoning on to thinking of minimum wages and other employment regulations as equivalent to a tax. That’s a very good way of thinking about it. It’s a tax with a narrow base. It’s a tax with the purpose of keeping people out of poverty – and it does that to some extent, it keeps out of poverty those who remain in the labour market but at the expense of those who are excluded from it.
We already have another anti-poverty device, it’s called the welfare state and it’s also funded by a tax but in this case a tax with a broader base. Taxes with broader bases create less distortion and generally cause less damage than taxes with narrower bases. Of course the disadvantage with people who are stuck in class war mode is that the first tax is on business owners and the second is on everyone. Fine, but even on class war grounds aren’t there better ways of dealing with such concerns without putting some people out of the labour market? How about finding more imaginative ways of progressivity which don’t create deadweight losses, don’t reduce incentives to work and incentives to employ people? For instance, steep inheritance taxes (e.g. no one can gift more than $X to their descendants, anything above that goes to the government – I really can’t see any damage to incentives from disallowing people from turning their children into spoilt millionaire brats). Like Nick I fundamentally don’t have a problem with redistribution if the damage is kept to a minimum
Jason,
I was making a slightly different point and I should probably have made it more forcefully. It’s nice to support the minimum wage because it promotes equality. But it’s not just a matter of the efficiency cost of it – it’s the fact that it both promotes equality (but pushing up low wages) and harms equality – by locking ‘outsiders’ out of the labour market.
Quite apart from any efficiency considerations, as I said in the piece, I’m more sympathetic to the outsiders.
I’m not sure what the strengths are Nicholas. I’ve already agreed with you on better policies for ther unemployed (although I would disagree on these coming at costs to poor workers rather than rich citizens). You seem to be saying that there are rich households with people on minimum, part-time, casual wages – which proves what, exactly?
As for regulation, surely it is a fundamental dishonesty to suggest that the existing system is ‘regulation’ and Howard’s proposal means less of it. Howard is proposing a massive re-regulation of the labour market in favour of employers, and if you were to take him at his word, to the extent that 4000 deals are to be replaced by some 9 million – now that is what I call a ‘thicket’. In fact, even if the High Court upholds his power grab, he still wont cover the field – thus leaving the other jurisdictions etc. It’s a recipe for a regulatory nightmare, if ‘regulation’ is what upsets you.
“But itÄôs not just a matter of the efficiency cost of it – itÄôs the fact that it both promotes equality (but pushing up low wages) and harms equality – by locking ‘outsidersÄô out of the labour market”
Matter of semantics, Nick. I see putting people out of a job as a matter of loss of efficiency. People can call that equity if it makes them happy. I personally don’t like the term, but ultimately we’re talking about a loss of welfare (because people don’t have jobs) so it’s all the same in the end.
Would somebody please like to clarify if lowering the minimum wage would, in fact, make employers more likely to take on more staff? I’m no economist. Surely there’d be an irresistible temptation for employers who do well with the staff they have, simply to turn the money they save on wages into profit?
I mean, if your business is doing fine with X employees who cost you Y, and the Government passes laws allowing you to lower Y, why should you also increase X?
</cynicism>
Well liam, I’ll throw in a couple of caveats on the abra will fall and cadabra will rise proverb. First, Stiglitz (2001):
And it is simply not the case that individuals could, by offering to work for a lower wage, immediately obtain employment. Efficiency wage theorists, insider-outsider theories, and a host of other theories have provided cogent explanations why labour markets do not work in the manner that advocates of the self-regulating market suggested.
Worse, what if Stiglitz and all the rest are actually wrong? What if labour markets actually did work in the abra cadabra way of things? Polanyi (1944) takes up the story:
Such a market could serve its purpose only if wages fell together with prices. In human terms such a postulate implied for the worker extreme instabilty of earnings, utter absence of professional standards, abject readiness to be shoved and pushed about indiscriminately, complete dependence on the whims of the market … it is not for the commodity to decide where it should be be offered for sale, to what purpose it should be used, at what price it should be allowed to change hands, and in what manner it is to be consumed or destroyed.
Welcome to the future, whichever is right.
And it’s also bad for long-term productivty, anyhow (‘cos it undercuts capital investment).
quoting Stiglitz out of context, CS, unless you’re running some sort of argument that employers can’t be trusted to make hiring decisions that maximise their own firm productivity and therefore we should keep their labour costs artifiically high so they’re forced to use more machines instead. The best that can be made out of efficiency wage arguments is that when offered the opportunity to cut wages, employers won’t because it’s not in their firm’s interests, which answers Liam’s question but in those cases where the efficiency wage argument is applicable, this suggests that minimum wage regulation is redundant.
Of course this isn’t true in all sectors. These are where the imposition of minimum wages would have led to some employers deciding to invest in capital instead of hiring 2 new workers. This isn’t always efficienct just because cs thinks we need ‘more’ capital investment. Of course cutting minimum wages won’t cause those same employers to now throw out their old capital and hire those 2 new workers but it does mean that startups will be more inclined to hire labour and those older business when they expand will on the margin decide to spend on labour rather than capital.
Jason, I don’t believe it’s out of context at all: see Stig’s “Foreword” to the 2001 edition of Polanyi’s classic, p. xi.
The other thing I think I understand about minimum wages is that when they’re lowered, it only takes one employer in an industry to lower their workers’ wages to force everyone else to follow suit. It might be in a firm’s interest to pay high wages to their workers, to keep them happy and productive, but not if they’re being undercut.
What’s to stop a race to the bottom?
But cs, you can’t have it both ways. You can’t argue that efficiency wage considerations make labour markets less flexible in adjusting wages to increase employment even if min. wages were reduces and at the same time argue that you’re afraid there’ll be a race to the bottom if min wages are reduced. However what you can argue is that whether efficiency wage considerations hold depend on the industry in question – it’s highly likely that in high skill industries, wages won’t be reduced substantially even if min. wages were reduced. No min. wages apply to most professions and no, there has been no race to the bottom nor lack of professional standards nor is there ever likely to be.
So the efficiency wage argument can address Liam’s question. It’s highly unlikely that an entire industry will race to the bottom just because one firm cuts wages. Firms are heterogeneous. Perhaps some firms specialise in maximising profits by employing highly skilled, highly motivated and highly paid workers, and others specalise by being cut price in everything. It’s not necessarily true that the second firm is going to always undercut the other overall.
Of course you can argue it both ways. It wont work, or worse, it will. The literature is vast.
Getting back to Nicholas’ post, after long ponderance, I’ve concluded he is implicitly arguing that those who no-one gives a bugger about – i.e. the filthy stinking rich in the top decile – should be household means-tested on whether they get paid anything at all, for their pay and benefits should be channelled to the unemployed. Well, it’s one reading. Nine-tenths of the deciles unite! You have nothing to lose but all your working conditions if you don’t, dummies.
cs,
IMO the biggest handicap for marginal workers entering the workforce is probably not so much their wage level but the fear of getting stuck with a dud via unfair dismissal stickiness. This is most poignant for SMEs rather than big biz with its greater HR resourcing capability. Peculiarly enough big biz has the most stringent testing and hiring procedures as a result, whereas most small biz relies on the gut instinct of the owner/manager. The latter know only too well the cost of getting that wrong because the cost of one worker brooks much larger in their operations. As a consequence they are much more conservative in expanding their workforce with more marginal workers(ie more risky ones with poorer work histories) They tough out having to expand for long periods as a result, preferring to raise prices with expanding demand, rather than expanding their workload via an expanded workforce. Also fear of copping an unfair dismissal suit encourages the use of casualisation and outsourcing to labour hire. My hunch is the new IR will collapse the labour hire industry dramatically in favour of more permanent employment and as well make marginal workers more employable, in an increasingly tight labour market. SMEs will be able to take on more of these marginals and persevere longer with them than is the case with probationary periods nowadays. You become acutely aware of a fixed decision-making crunch time with the approach of the end of probation periods nowadays. When in doubt you err on the side of caution and let them go if you’re not entirely convinced of their productivity. Scrapping unfair dismissals for most SMEs will be the greatest boon for this IR. The rest is just padding. Trust me, the sky would not fall on wages, if the govt scrapped all legislative intervention in IR tomorrow.
The unions need to embrace the labour hire company model, with more of an emphasis on worker placement and advocacy in AWAs. They can charge both employers and employees for this service and perhaps get into upskilling and training(govt lolly here)That means concentrating on that core business model, rather than getting sidetracked with politicking. Stop trying to stuff workers into one size fits all shoes. They don’t want that anymore than employers do.
I don’t comment on these threads because I know less than nothing about economics and almost as much about IR. So why does observa seem to make more sense than either cs or Jason? I guess IR an idiot.
“WhatÄôs to stop a race to the bottom?”
The same things that stop the prices of all goods and services in the market-place racing to the bottom. Costs and the need to earn ‘normal’ profits in the long run. ‘Normal’ means the average rate of return to the owner’s capital, as well as the best opportunity cost return to the owner’s labour. Notice here that a new owner or startup may be prepared to sacrifice some ‘normal’ returns in the short run to achieve that stable longer term goal. In fact it’s very likely that a new startup will have to do that anyway, because of lower productivity due to inexperience or undercapitalisation. They usually compensate by working stupid hours initially, forgoing the reasonable opportunity cost of their labour as an employee elsewhere.
Let me explain the notion of ‘normal’ profits here for the wage and salary earner. Suppose you are an electrician earning $75,000pa as a supervisor for an electrical firm and you win $1mill on Eddy’s show. You’ve always dreamed of being your own boss and on investigation you can buy a competitor’s business for the $1mill that shows a stable return to its retiring supervisor/owner now of $150,000pa. Would you jump at doubling your income? Not necessarily, until you know another important fact. What is the ‘normal’ rate of return on your capital elsewhere. If its 5%($50k pa) the deal looks good, but if you can get 10%($100kpa)then you’re better off staying where you are. Same rules apply if you didn’t win the million and had to kick in your life’s savings and hock the house to buy the biz. In actual fact the goodwill you pay for the business will be adjusted to reflect normal capital returns to the owner, with some adjustment for industry sector risk and the like.
Now should a rise in ‘normal’ returns to capital occur in an industry or sector of the market(ie supernormal profits), say due to increased demand, or technological breakthrough, those nasty capitalists hunting better returns will invest in that area and drive the returns back down again. Of course they might be doing that with your Super funds and putting a smile on your face at annual statement time.
I’m not convinced that cutting the minimum wage would lead to a significant increase in employment.
I think Andrew Leigh’s point about unfair dismissals (that they won’t necessarily increase employment, but they’ll make unemployment briefer) is a better one. But I’m still stuck on the fact that it will be other workers who bear the burden of the increased risk of unemployment, rather than business executives who pay themselves performance bonuses for laying off staff.
And I’m also concerned that the people who benefit from the vacancies created (low-skilled workers in low-paid jobs) are also those who are most likely to be sacked unfairly (because they’re easier to replace — there’s someone on the dole who can do their job, which is the point of the policy).
Not to mention the changed relationship with their boss while they’re actually in work, now that they can be sacked on a whim.
So I’m not convinced that there’s a net gain involved. Taking something from the working poor and giving it to the unemployed poor might be progressive, but only in a very shallow sense that lets the big end of town off the hook.
Jason not surprisingly is correct.
A lower minimum wage will lead to more employment.
US experience ( this is dated) is that these people gravitate to higher paid jobs over time as employers give them more skills.
Just want to note the most regulated part of the labour market is for senior management where you must pay out even if people are incompetent.
I’ve got ot fly and will try to comment more tonight.
But Homer, I have a very clear memory of Will Hutton a couple of years ago when researching his book The World We’re In finding a ‘killer statistic’ that surprised him. That is, there was negligible upward mobility in the US from the bottom decile.
Neverthless Barbara Ehrenreich found that her co-workers struggling at the fringe felt that they were in the land of opportunity and would be rich one day.
I think it’s called the internalisation of dominant class values.
sorry Brian,
but the last time I lokked at the States was that there was in fact a lot of mobility. the percentage stayed pretty ‘mobile’ but the people changed.
As I said previously it has a lot to do with training at work as well as people of course doing self education.
My memory has this happening during the ocurse of the welfare to work debate in the US which Bill clinton eventually signed.
A few points.
1. The literature on the effects of wage floors is contradictory, with a tendency to support their usefulness. Contrary to some claims above, there is no clear evidence that removal increases employment. To claim otherwise is ideology, not research.
2. Nicholas’ interpretation of the Hilda surveys is problematic in that significant numbers of the minimum wage recipients in middle income households might be part-timers, such as students. Their presence distorts any conclusions as to the effect of wage floors on low income people.
3. Given the lack of clear evidence on wage floors and other conditions, why does the government find it so important to ram through these changes, to the extent of spending an unprecedented $15 million advertising them?
4. On Jason’s and observa’s claim that employers refrain from exploiting market flooding to reduce wages, especially in high skill areas, note that the starting wage for computer science graduates declined from $40,000 in 2001 to $38,000 in 2004. Similarly, IT staff at EDS had gone up to seven years without pay increases. Employers do indeed reduce pay where they can, and that flows across markets.
5. The appeal to statistical analysis is only one tool for interpreting the IR changes. Another is to examine motivations and campaigns of relevant parties. The labour hire industry and employer and business groups all passionately want these changes. Those are not philanthropic organisations. Several of their spokesman have by now let slip that one motivation is to reduce their costs. Those cost reductions will be borne by workers.
6. Even if removal of wage floors increases employment, it also imposes higher transaction costs on low income people, reducing their income.
7. The IR reforms remove one of the threats to labour hire – the threat of courts challenging fake contracting relationships. The labour hire industry will be boosted by these changes, not harmed.
8. Most of the IR discussion misses the point. These changes are about exposing our workforce to globalisation and high levels of cheap guest workers. Yesterday Costello let slip the need for higher levels of unskilled migration. Today the Housing Industry Association has started to whinge about the quality of Australian apprentices. This is a familiar refrain in the IT industry, and one redolent of fraud.
Or hegemony of capitalist ideology.
(That was in response to Brian, a few comments up.)
Jason is right, of course, that there will not be a race to the bottom across the board. But in certain industries with low-skill workforces, it will be inevitable. Evidence about the introduction of individual contracts to the cleaning industry in WA under the Court/Kierath regime shows that initially, companies stayed on awards because they wanted to maintain “a level playing field” on wages. But when a couple of companies used individual contracts to cut wages, other companies were forced to follow suit.
Homer seems to have been put under the abra cadabra spell. Over the past five years minimum wages in Australia have grown by a little over 5 per cent in real terms, while they have fallen by almost 12 per cent in the US. Over the same period, job growth in Australia has been over 10 per cent, compared to less than 3 per cent in the US. And compared to the good old Australian minimum of $12 an hour, in the US we’re talking slave minimums – federally US5.15 an hour (in Arkansas, the state minimum US$2.65 an hour)
CS, have a look at the Unemployment rates particularly for unskilled!!
Homer – the unemployment rate is misleading for two reasons – the US statistician compiles it by door to door surveys of homes – and many areas in cities and in rural areas aren’t surveyed. And secondly, a large proportion of the potential low waged labour force are incarcerated.
See also the impact of the very high rates of incarceration of black males on wage inequality.
Tony’s link to the HIA whinging about apprentice quality is relevant here. They’re really pointing out the problem of the work ethic in kids that stay at school too long. Notice they point out 55% of apprentices don’t finish their apprenticeship. The construction industry loses patience with that sort of result and basically tradeys then take the view, why bother.
In private industry overall, 28% of the workforce is now self employed or contractors. They operate perfectly well in a cut throat competitive tender environment and wonder what’s so special about the rest of society that needs govt legislated terms and conditions of employment. One thing we now as gospel-if you can’t find good paid work in this country you’re either too lazy or too fussy. The people queuing up to come here know that too.
Mark, they use a household survey like we do.
The standardised rates used by the OECD aren’t too different either!
And on the subject of the Australian jobless rate, the Brotherhood of St Lawrence says the real figure is 12 percent (Age, 17 Dec 2004) and John Garnaut (SMH, 12 Mar 2005) concurs, putting it as high as 14.8 percent.
When the CIS’s Saunders and others dispute those figures, they don’t seem to really engage with the main claims, reflecting, in my view, a complete lack of understanding of the issues.
Homer – yes, as I said – but the three differences are that their population is far more decentralised, there are many areas in cities and in rural areas considered to be too unsafe for collectors to go to (no doubt also the ones with high unemployment), and Americans don’t like answering questions from government agencies – see also the massive problems they have getting reliable data at census time.
Observa, if you’re talking about subbies in the building industry – one word – recession. Then we’ll see.
As for “independent contractors”, a friend of mine is living on thin air at the moment because she’s waiting for payment about two months overdue from two companies for which she’s worked. She’s previously had to take another to court to get the money she’s owed.
cs, countless carefully controlled econometric studies with the exception of Card and Krueger (which I’ve explained elsewhere, even if true isn’t applicable to Australian labour regulations anyway) find that the price of labour affects the demand for labour. this isn’t a terribly surprising result. where the relationship may not hold and where raising wages can increase rather than decrease employment even if all other factors are controlled for is where there is a monopsony i.e. where the employer has substantial buyer market power.
attempting to refute this relationship by pointing to the US vs Australian experience looking at macro results without controlling for other factors is amateur hour.
that is why Jason is the Soon king!
Jason – the question is how much and at what social and individual cost, I’d have thought?
An interesting article Jack Strocchi sent me in The Age today.
Nicholas presents his argument as one of justice for the unemployed. I, like other commenters on this thread, cavil with many of his assumptions (but I don’t have time to go into it as essay marking calls), but I’d also point out that the reduction of wages at the bottom of the labour market poses a countervailing issue of justice.
And to what extent? As someone pointed out earlier, a lower price for labour is not the only or by means the most important factor in organisations’ hiring intentions.
More evidence of a nation of softcocks
http://www.news.com.au/story/0,10117,16977859-29277,00.html
Just don’t get me started…. I’m in a grumpy mood today.
The tradeys I know would look forward to a downturn in the building industry Mark. They’d be able to turn their mobiles on again so the missus can keep in touch. They’ve been on Messagebank for a few years now.
Tell your friend she needs to work out her charge rate and add 10%. That 10% is then the discount she offers for payment of her invoices within 14 days. You can even buy a roll of bright coloured finger pointing stickers to point out the discount on the invoices. In the rare event you don’t get a cheque by the 14th day, you ring to ask if they’re aware they’re giving up their discount today. You’re then a real nice person when you give them an extra couple of days to receive the cheque they’re posting that day.
Jason, as far as I have ever been able to tell, there is no evidence for the proposition that minimum wages increase unemployment, except for the never ending assertions of neoclassicists that they do according to a two-dimensional drawing which has a supply curve (abra) and a demand curve (cadabra), and an arbitrarily drawn line called the ‘minumum wage’ (hey presto).
My understanding – what we really and truly know – is that mimimum wages (and unions etc) reduce earnings inequality but have no conclusive relation to other outcomes such as unemployment. Even that hitherto bastion of the orthodoxy, the OECD (pdf p. 81), has now concluded that the evidence on the role played by employment protection laws on agreeate emplyment and unemplyyment “remains mixed in both theoretical and empirical studies.” For a summary of much of the research, see Richard Freeman.
Love to stay and argue, but must rush now. Cheers.
We could test that theory by doubling the minimum wage at the stroke of a pen cs.
I see you read the links carefully observa.
that is the logical conclusion of what CS said.
too much clapton not enough Gallagher!!
“I see you read the links carefully observa.”
I’ve sometimes got other things on my mind
http://www.news.com.au/story/0,10117,16976212-29277,00.html
No it’s not. Too much dancing to ABBA, and not enough reading and thinking Homer. The imposition of minimum wages much higher than the real minimums that have been studied obviously would carry risks. The studies show, or imply, that little of the cost of real-world minimums is borne by the unemployed, or at best (for the wage-cutters) that no conclusion can be drawn.
“Mr Ware was awarded $10,000 compensation, plus termination payments and other costs.”
This country’s too full of mushbrains and softcocks I tell ya! Don’t start me, just don’t start me…!
that sure is better than p…ing in the wind!!
Trouble is, these cases that get to court are the tip of the rather chilly iceberg for employers, who are generally advised to roll over to the shooftis, layabouts and professional scammers. To think the employer here, actually thought they had a reasonable case to fight. Silly buggers. Reading between the lines of this report doesn’t exactly give us much confidence that Howard’s IR reforms on unfair dismissals will give us much relief from the nosewipers and lawyering classes overall.
I know this is a simplistic reading but the discussion of mobility above suggests that resources committed to train and upskill minimum wage earners will allow those workers to move on to better paying jobs, freeing up minimum wage jobs for the unemployed. No? Why not pursue this strategy instead of reducing minimum wages?
CS:
About the US:
The mandated minimum wages ren’t necessarily what low wages workers are paid. It’s a floor.
The real problem for the American underclass- read Blacks- is the border problem. There are an estimated 8-11 million illegal immigrants in the country and most of the impact from this is the effect it has on low wage workers. If BOTH parties cared about the poor there something would be done about this. That’s the one major reason why lower base earnings have not done well in the US.
The problem with the way IR refroms have been sold by the Government has been wrong. They have focused on the issue of productivity by spnning the story that IR refrom will make wrokers more productive. This is wrong at it’s core. Why? Because we may see a one boost to productivity or we may not- no one really knows. What IR reform would do though is broaden the employment base.
“this is wrong at itÄôs core. Why? Because we may see a one boost to productivity or we may not- no one really knows.”
Good point Joe. Everyone hates uncertainty when it comes to their job.
Which leads me to another point. The whole Gov IR marketing campaign is based on a premise that every junior copywriter has thumped out of him or her within hours of starting work.
Never offer a solution to a problem that you haven’t raised and defined yourself.
In short it’s defensive advertising – like an oil company apologising for a big spill. The ACTU campign put the Government on the back foot and now they’re only reacting instead of resetting the agenda.
I do hope Ted Horton is now considering his own work choices as the campaign he designed is rapidly entering adland history as one of the all time great cockups – alongside “Hello we’re Optus. We want you to feel like the only person in the world with a telephone.”
Joe, yes I understand it is a floor, and only about 10 per cent of US workers are paid the minimum. Australia’s minimum is also a floor, although a substantially more humane one, particularly when you take the national medical insurance that Australian workers also have into account.
NicM, yes there is something in that, of course. Yet, I also understand that low-pay is far from perfectly correlated with skill levels. There are trade-qualified workers on low-pay (eg hairdressers), the returns from training are substantially poorer for women and ethnic minorities (than the returns to white middle class males), there are low-pay jobs demanding higher levels of skill and responsibility than higher paid jobs (sometimes much more highly paid) – suggesting that low-pay is also associated with the social status of the job and workers (women, migrants) and the low bargaining power of the workers (the incidence of low-paid jobs in transnational and monopoly firms undermines the idea that it is always related to a firm’s capacity to pay). Under these conditions, collective bargaining and an effective minimum floor are the only safeguards against impoverishment.
Joe is right about the problem of 8-11 mill US illegals contributing to low pay. Bush would not promise to deal with that political problem at the last election, but he has just come out and stated he will repatriate all illegals as soon as administrative capacity allows(can’t find the article on that now)As part of that he promised to give all illegals who voluntarily opt to, a 6 yr working visa amnesty before repatriation as a sweetener. If you don’t and you’re caught it’s immediate repatriation. The Us is about to close its borders to the third world similar to Howard, Zapatero and the West in general. Those who criticised Howard for his foresight here, now have to seriously consider their position on that. If Bush manages to deport his illegals and stop more coming, the US may produce some nicer income distribution figures. Presumably that will please the critics here, but it is beggar thy neighbour policy of course.
Offsetting that impact on national income distribution will be the effects of globalisation discussed here
http://www.latimes.com/business/la-fi-workers18oct18,0,7671153.story?track=hpmostemailedlink
Out of the frying pan and into the fire for MDCs building fences, if they don’t hide behind tarriff walls also. I noticed this morning that 3000 Qantas maintenance staff were given an ultimatum to cut restrictive work practices, etc, or maintenance will be off-shored. Howard’s IR reforms are probably necessary to deal with this growing situation, lest the result is to show up in ever higher domestic unemployment.(refer to the LA Times article again) Curiously enough, China who refuses to allow its currency to float upwards(ie more market oriented policy) is of course exacerbating the trend for offshoring out of MDCs. The international problem is quite complex.
In summary, both left and right in MDCs have to face some uncomfortable realities. Hiding behind razor wire and tarriff walls will protect the most vulnerable in MDCs and foster more internal equality, but beggar our neighbours and then there is the converse. You don’t get to cherrypick your compassion here, which of course is something both sides like to do from time to time.
Jason, as far as I have ever been able to tell, there is no evidence for the proposition that minimum wages increase unemployment
Somebody tell me he’s joking. The evidence is overwhelming. Far more convincing than the evidence that the earth is warming — but we both accept that.
Well John, I’ve supplied the links to: (1) a learned paper canvassing the state of the literature on the issue; and (2) the recent reversal on the issue by the once strictly neoclassicist and never known for its sense of humour OECD. Knock yourself out, or laugh yourself to death, whichever.
cs, the OECD paper was on employment protection legislation i.e. unfair dismissal laws, not minimum wages.
if there is no econometric evidence on the relationship between min wages and employment then I wonder what all the fuss about the Card/Kruger study was about?
at best there are special considerations at work in the labour market which dampen the relationship between price and demand i.e. some efficiency wage considerations (paying lower wages by reducing motivation and morale can reduce productivity and profits), they do not repeal the relationship.
Fair enough Jason. I took it as a statement about the mixed evidence of the impact of institutions generally on outcomes. However, I’m happy to give it up as unfair dismissal specific, and rest on Freeman’s more general summary (link above). And while I’m conceding things, I agree that was a poorly worded sentence which you and John have referred to. There is of course truckloads of ‘evidence’, both ways. The point is that none of it, either way, has proved conclusive.
Lots of interesting comment.
observa is right in reminding us that we all have a stake in the corporate sector if we have any superannuation. That does not excuse companies from engaging in exploitative and ethically dubious practices, however.
I have direct share investments. I would never invest in Qantas quite apart from the fact that I consider the whole industry as performing below investment grade. I just don’t want to be part of the CEO’s attitude to unions.
Observa, if you’re there, what do you think of how independent contractors will be placed under the new legislation? Apparently there are 1.9 million independent contractors in Australia and 21% of workers in the construction industry work on a contract basis.
There is an article in the BRW (subscription required) suggesting that independent contractors are more vulnerable. It says:
Howard refuses to commit to no disadvantage. So, will he commit to an unemployment rate? Will he promise that under 3 per cent unemployment is guaranteed, or the whole thing will be reversed, or he will resign? We need more than a suck it and see scenario to put the nation’s hard-won working conditions up for grabs. What is Howard promising exactly? Besides shit?
I’ve just released (PDF) looking at some of these issues, which might be of interest.
Time for me to go back to HTML school. Let me try again.
I’ve just released a paper (PDF) looking at some of these issues, which might be of interest.