Julia Gillard has criticised the decision of the Fair Pay Commission to award no increase in the federal minimum wage. She accurately notes that the decision will have an impact on other workers as well, because the safety net is the floor which underpins bargaining.
However, Gillard and Kevin Rudd might themselves bear some of the responsibility for this decision, which will – rightly – be a political problem for the Labor government. The Commission was heavily criticised by Labor in opposition, and next year it’s due to be abolished, its functions rolled into the AIRC’s replacement – Fair Work Australia. If the criticisms made of the process and of the narrow economic orthodoxy of its chair, Professor Ian Harper, have merit, it surely should have been open to the ALP to hand back the wage setting powers to the AIRC earlier. The ‘softly, softly’ approach to IR reform is full of contradictions, one of which will unfortunately now impact on those least able to afford to shrug their shoulders at the political game. It isn’t a good look for a Labor government.
Elsewhere: Via Andos in comments on another thread, a link to a useful interview on ABC Radio with ACOSS. The point is made that research from the OECD (and from other sources, I might add) debunks the notion that there is a strong correlation between small rises in minimum wages and unemployment.
Update: Matt C notes in comments that the FPC’s own modelling of its previous decisions shows only a minimal effect on unemployment of a decision not to increase the rate.
Elsewhere: Rob Corr.
Update: New post.
The AFPC’s own research has found that if they did not increase minimum wages between 2006 and 2008, unemployment would only have been around 0.05 per cent lower.
Not to worry, I’m sure Limited News [actually this comment is at least partly based on a desire give that hopefully catchy new meme of 'Limited News' a bit of a boost] will do what they alone can do and investigate the claim made in sonorous tones by some business PR fella on the news that we can’t afford to lose jobs by raising the minimum wage and refer proudly to the research that shows that to be false.
Won’t they?
Matt, there is a big difference between rising minimum wages during an economic boom and rising minimum wages during a severe downturn!! Increasing the cost of labour at a time when the demand for labour is falling, is just stupid. Between 2006 and 2008 the Australian economy was booming and there were severe labour shortages.
Think of it this way. Let’s say you looked at a single firm and saw that employment at that firm continued to grow strongly, despite a significant increase in wages, during a time when its profitibility was also growing strongly. Would you then say that when its profitibility was declining that there should be no employment effects? If firm profitibility is being squeezed as it is during the downturn, and you then force them to pay their employees more, even though their busiiness circumstances might not warrant it – how do you think those firms will respond?
Although the impact of any one decision on the unemployment rate is likely to be small – cumulatively, the impact can be much larger. Further, the incidence of the rise would fall most heavily on the most vulnerable, low skill, low experience workers, like some categories of young people. So, some categories of worker could see their unemployment rates increase considerably more. If Gillard is concerned about the impact of the decision on the vulnerable, then there is a simple solution – hand more money to them through the tax-transfer system – that way the government can target incomes without a negative impact on employment.
Australia already has some of the highest minimum wages in the OECD. As I said, even if any single incremental rise in the minimum wage has only a small impact on the aggregate unemployment rate, if each year that same incremental increase is awarded, and in particular if that increase is above the rate of productivity growth of those workers, over time it will leave the unemployment rate of those groups higher than it would otherwise be. In those countries where the minimum wage is low, and less binding, employment effects are likely to be smaller than in countries like Australia where that isn’t the case. That difference helps to explain the famous Card-Krueger McDonalds case study in the US where increases in the minimum wage did not have employment effects.
I think it is a great decision by Harper.
Key paragraphs from the OECD jobs study:
“What are the pros and cons of having a minimum wage? Wage floors dissuade employers from pocketing tax concessions aimed at improving take-home pay of low-wage workers or passing on any payroll taxes by lowering wages. They can improve equity by lifting the incomes of lower paid workers and encourage those on the edge of the labour market, such as the low-skilled, to hunt for a job. If set too low, they lose this usefulness. However, if set too high, minimum wages will stop employers from hiring lower skilled workers, and may end up protecting the “insiders” with the jobs.”
“If several countries with legal minimum wages have low unemployment rates, it is largely because the level is deliberately set so as not to constrain job growth. In the UK, a special commission has been quite effective to date in ensuring that the minimum wage keeps up with living costs and growth, while not rising too high.”
“On balance, the evidence shows that an appropriately-set minimum wage need not have large negative effects on job prospects, especially if wage floors are properly differentiated (e.g. lower rates for young workers) and non-wage labour costs are kept in check. But what about the goal of boosting incomes among lower paid workers? Do wage floors “make work pay”? Consider gross earnings first. On average across 21 OECD countries, the gross earnings of a full-time minimum-wage earner came to nearly 38% of average wages, ranging from roughly 25% of the average in Korea and Mexico to more than 45% in Australia, France, Ireland, the Netherlands and New Zealand.”
“After adjusting for differences in prices across countries using purchasing power parities for 2006, this leaves a net income of about $4.50 per hour in the US and Japan. A full-time minimum-wage job pays most in some west European countries and in Australia, at a PPP equivalent of around $7.50 per hour.”
“In other words, raising minimum wages might lift labour costs, but not necessarily boost net incomes as much as they should. Policymakers may achieve more impact by improving disposable earnings via changes in the tax and benefit system. By blending such measures with appropriately-set minimum wages, work can be made to pay.”
In short – minimum wages can be appropriate as long as they are not set at too high a level. Australia is not a country with a low mininum wage.
We have a minimum wage – it is called Newstart (and other Centrelink payments).
And before someone says that macroeconomically it is a bad idea to cut wages during a downturn because of the impact on aggregate demand, things are significantly more complicated than that. First, if wages rise more quickly than productivity, that will feed into prices, which will cause the real exchange rate to appreciate, which will worsen the current account. Second, the most effective way for the government to maintain and boost aggregated demand and limit employment losses is to run down their own savings to boost household disposable incomes and offset reduced investment by the private sector, without forcing unnecessary burdens on businesses….
From the Fair Pay Commission. It specifically addresses Matt C’s point. Also, they have an interesting analysis of the usefulness of boosting wages as a way of stabilising aggregate demand:
“In its 2008 general Wage-Setting Decision, the Commission was especially cognisant
of the fi nancial pressures on low-income households at that time of increasing consumerprices. The Commission therefore placed emphasis on the role minimum wages play in maintaining the safety net for low-paid workers. The Commission considered that the impact of the 2008 Decision on employment and unemployment would be minimal, given the strength of the labour market and employment growth at the time the decision was reached. Since the 2008 Decision, the economic outlook has changed markedly. Employment growth is slowing, average working hours are falling, and the unemployment rate is expected to rise to 8.5 per cent. As in previous downturns, the impact of these changes in the labour market will be felt most acutely by low-paid, low-skilled workers.”
“The Commission reviewed the empirical evidence on the use of minimum wages to
increase aggregate demand and thereby employment. Modelling commissioned for
the 2009 Minimum Wage Review fi nds that an increase in household consumption
in the short term, in response to higher minimum wages, would be offset by a fall inconsumption as a result of lower employment, with other forms of demand such as
business investment also decreasing.”
The way this thread comes across you would think the Commission ignored all the familiar arguments and aren’t aware of the literature analysing the impact of minimum wage decisions on the economy and the welfare of low-income workers. Do you really think Harper is that stupid?
Labor Outsider – very informative comments – thank you.
One more quote:
Recent modelling undertaken for the Commission fi nds that the disemployment effect of increases in minimum wages becomes larger during a recession. This research finds that the minimum wage adjustments from 2005 to 2008 had only small short-term effects in the context of a strong labour market. However, during a downturn, as aggregate wage growth slows and new job opportunities diminish, minimum wage increases are estimated to have a magnifi ed negative effect on employment. In previous economic cycles, while the recession itself may have been short, the recovery in employment has tended to be weak and it has taken a long time for unemployment to return to its initial low rate. A lesson from this previous experience is that decision-makers should act early to limit the increase in unemployment and to lend greater support to employment.”
Says it all really….
Labor Outsider seems to switch between talking about a “minimum wage” and then about “minimum wages”. The Fair [sic] P{ay Commission does not set a single minimum wage but an entire pay scale of minimum wages for all grades of work in Australia. This entire scale was frozen, yet the Commission offers no economic justification for this, merely seeming to cite arguments, which Labour Outsider dutifully repeats, concern the absolute minimum wage.
As Mark points out, the award rates the Commission sets underpin bargaining. By setting only dollar increases in the past, the Commission and its predecessor (the AIRC) made sure that award reliant workers fell behind many of those in the bargaining stream. This will make this disparity even worse. The idea of keeping award rates low was to encourage employees to bargain: but surely it just encourages employers NOT to bargain. The new good faith bargaining provisions of the Fair Work legislation might redress this, an more award reliant workers might be able to get up a collective bargain, against their bosses’ opposition, that might secure them a decent 4-6 per cent pay rise. We shall see.
But the point is that more than any other decision in the past, this one will see workers doing similar work of similar value being paid markedly different rates. Surely this takes the ‘Fair’ out of any Fair Pay Commission
Obviously, there are multiple minimum wages within the current system. But the arguments are quite similar. Moreover, just as is the case currently, for those firms that feel it is in the interest to (as many do) they can pay above the legislated minimum for the appropriate category of worker. If you can’t get it out of your head that fairness does not imply paying everyone the same amount, just because it looks to you like they do a similar job, then it is hard for us to debate this much. Personally, I hate the system of multiple minimums and would like to see a single minimum amount. But the FPC doesn’t have the power to rectify that problem – it is a hangover from Australia’s immensely complicated industrial relations system of the past. Do you really think the economic circumstances of woolworths are identical to the circumstances of the local deli and hence they should be forced to pay their workers exactly the same amount? The current system tells employers the minimum they have to pay their staff and then lets them determine whether they want to offer more than that minimum. Many do exactly that.
None of these other organisations such as FPC, IRC replacement etc. will have any significance once The Charter of Human Rights is passed, as then it will be High and Federal Court judges making big decisions like these.
“If you can’t get it out of your head that fairness does not imply paying everyone the same amount,”
No, I think I’ve got that out of my head. I’m more the kind-of-fairness-does-imply etc etc kind of guy, the exact opposite of what you propose.
“just because it looks to you like they do a similar job”
No, not what it looks like to me, heaven forfend, but the Commission used to do something called ‘work value’ judgements, with some expertise I suspect,
“But the FPC doesn’t have the power to rectify that problem – it is a hangover from Australia’s immensely complicated industrial relations system of the past”
Hangover is a nice word for what we’re all feeling post-WorkChoices. But, really, the Howard government had the opportunity to remake our IR system, and to a large degree did so. To the extent that the FPC does not depart from the established Australian method of wage fixing is not some ‘hangover’ due to the dead hand of history but is entirely due to the Howard government’s decisions not to embrace another model. If you think things could be done better, stop blaming Deakin and point the finger.
“The current system tells employers the minimum they have to pay their staff and then lets them determine whether they want to offer more than that minimum. Many do exactly that.”
Sounds good. Let’s give employers the best advice possible, vis a vis market rates rather than lets-avoid-bargaining rates. And such a system that lets them outsource their HRM would, I imagine, be greeted with open arms. So why the antagonism to the current sytem?
Frank Crean
Im not having a go at you here, but how do you come to that conclusion? How would a charter of rights change the awards/minimum wage systems? Thats the first Ive heard of it.
Mole
I don’t know much you know about the UN human rights regimes, so please don’t be offended if I’m telling you things you already know.
As you know, the UNGA passed the Universal Declaration of Human Rights. Now ‘Declarations’ are just nice statements never intended to have any authority, especially legal authority. So then committees were established to draft a Human Rights instruments that would have teeth.
While all this was going on, the Cold War raged. The US and its allies thought of “rights” in civil and political terms. That is “negative” rights. While the Soviet Social bloc demanded rights be economic.
It was not until 1966 that the impasse was solved by passing TWO instruments:
1. The International Covenant on Civil and Political Rights (ICCPR) and
2. International Covenant on Economic, Social and Cultural Rights (ICESCR)
Australia ratified the ICCPR in 1980, and included it in the HREOC Act 1986, I can’t remember when it ratified ICESCR, but it is not included in HREOC Act 1986.
But you should check this ICESR out. The High Court todays would also have said no increase in the minimum wage as it would interfere with “the right of the unemployed to work.”
Happy Days ahead.
That’s a huge jurisprudential stretch, Frank Crean, and purely speculative. I don’t think overblown claims about the possible effect of a possible charter of rights really go to the central issue here.
Great discussion LO and Anthony. LO, you’re an out-there person, that’s for sure; it’s very hard to pick which side of the fence you’re going to fall on with some issues. I suspect you had a lot of sympathy with particular areas of the Australian Democrats in the past.
I do think Anthony has a point however, there is wage, and wages. More importantly though, in the absence of any convincing evidence that small wage rises lead to unemployment rise (there’s no data for some of your assertions, LO, merely more assertion), I think holding them off is once again giving security to those who least need it, and taking from those who do (If a company can’t afford a $20-$40 a week raise for each employee, that’s a ridonkulously small margin).
$40 bucks a week would mean a hell of a lot to my brother and sister in law; He works six days a week at three different jobs for that family. I don’t think his employers (Sunbeam, others) would feel that pinch, but he certainly feels the lack of it when the kids need new uniforms, school camps, tutoring, etc.
Patrickg: I suppose the argument is whether that $40 per week would be best provided to your brother through wage rises, or through income redistribution fiddling with tax rates and transfer payments.
True, Robert, but we’re not really seeing that. the $40 bucks a week is going to the top income earners, the lower to mid end get effectively bupkiss.
Patrick
If you’d like I can point to a vast literature linking minimum/award wages not linked to productivity improvements to lower rates of employment for effected workers and in particular the low-skilled and low experienced.
Remember, I wasn’t saying that a $21 increase a week would have massive employment effects. It won’t. But it certainly will imply less employment than there otherwise would have been for low-skilled less experienced staff. And given that there are more effective ways to target those same workers without the negative employment effects, why not use the most effective tools?
You make reference to Sunbeam but think about it. They produced traded goods. If they face higher wage costs that are not related to productivity, then they have a difficult choice. They can’t really pass those higher costs on to workers because many of the firms they compete with will not face similarly higher wage costs. So, they can either absorb the incrase in their profit margins or reduce their headcount. If even 1 person at Sunbeam either loses their job, or most likely is not hired in the future because of the increase, and then you roll that out to thousands of employers across the country, you start to get effects that are pretty meaningful.
Don’t get me wrong, I am not suggesting that your brother isn’t deserving of a higher disposable income. But if we think he should have it, we should deliver it in a more efficient way – through the tax transfer system. The alternative has negative side effects.
With regard to my positions I am pretty much a liberal (small-l) on most subjects. Inequality matters to me but many of the groups that also say it matters to them in my opinion pursue policies that can actually make inequality and equal opportunity worse.
It isn’t enough to want a particular policy intervention to be fair and have good distributive implications, one has to take into account the unexpected consequences as well.
“I suppose the argument is whether that $40 per week would be best provided to your brother through wage rises, or through income redistribution fiddling with tax rates and transfer payments.”
I suspect that the source of income is important to most people. Wages are a reward for effort: a fair day’s pay for a fair day’s work. For the purposes of restraining wage increases the Coalition argued for the importance of transfer payments in lifting households’ income, but then on the other hand decried ‘welfare dependency’.
Mark
I am not wildly speculating. There is a minefield of international jurisprudence already in existence all around the world on every single one of these instruments. Our Charter of Human Rights requires our Australian judges to accord that international jurisdprudence far greater precedent weight than any other aspect of Australian law.
We don’t have a charter of human rights federally, Frank Crean.
Anthony @ 21 makes a good point.
Even if we accept LO’s premises, his solutions aren’t the only ones. The argument becomes very abstract when considered macro-economically. Let’s see if we can particularise it:
(a) There are other things governments can do to stop particular jobs being lost;
(b) 1.25 million Australians will now have a drop in their real wage over the next little while, and this will affect them much more than those who have the luxury of speculating on ideal policy settings in a political world that isn’t all that amenable to them.
I cannot believe the government was so silly as to suggest a wage rise in the present circumstances. There’s a time for everything, and now is definitely not the time to price marginal workers out of work.
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I won’t add much to LO’s competent dissection of ACOSS’ selective interpretation of the OECD paper. Just two things:
- how much unemployment a given minimum wage rise costs depends, inter alia, on how high it is. We have minimum wages that are at or near the highest in the world, so a rise in our minimum wages would cost more jobs than a similar rise would in the typical country that figures in the OECD paper. The strong case for a rise in the US minimum wage, for example, just doesn’t apply here.
- Australia has an unusually high proportion of its low-paid wage workers living in multi-waged households (a product of the design of our tax and welfare systems, BTW). So even without an increase in unemployment a rise would do very little to address poverty.
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Face the unpleasant realities, people. As I’ve said before here, I wish we lived in a world where people were paid according to their innate value as human beings. But we don’t – we live in a world where people get paid only if someone can make a profit out of them. Screwing up wages at a time when profits are disappearing is a recipe for ensuring more people don’t get paid.
Mark
Yes, we do. It is just waiting to be given a routine run through parliament in a couple of months time. It was written quite a while ago.
“Face the unpleasant realities, people.”
As one of what it pleases DD to call “people”, I will reiterate the reality: the FPC has frozen not just the minimum wage, but all award wage rates. Can DD’s erudite discussion be expanded to offer a justifiable defense of that?
Can we get the terminology right, please? As much as the “Fair” Pay Commission wants us to think this is a wage freeze, it’s a real wage cut for Australia’s lowest-paid workers.
(Frank, if you want to blog about the possible impact of an as-yet non-existent federal charter of rights, then I suggest you get your own blog and do it there. Please don’t hijack this thread.)
For many families they were delivered as multiples of $900 cash payments. They could have been given as tax cuts instead. Stimulation of the economy aside, hopefully many families had the foresight to save knowing that wage rises in the immediate future were unlikely and risk of unemployment higher.
The fair pay commision made the right decision. In theory, increasing wages will help the economy by increasing the purchasing power of low income earners. In practice, the risk is that the wage increases will be offset by price increases and all we end up with is a bit of stagflation.
If we want to increase the real purchasing power of low income earners it would make a lot more sense to do this by using tax increases to pay for regular stimulus payments. During a recession, this approach avoids the risk of stagflation, provides no excuse for price increases and certainly can’t be accused of favouring the rich. If equal payments are made to each man, woman and child it avoids complicated administrative systems, provides more help for families with kids and doesn’t create another welfare trap.
Big Julie should stop hiding behind the Fair Trade Commission. The government has the power to use regular stimulus payments and tax increases to redistribute income in favour of low incme earners.
The AFPC’s own research has found that if they did not increase minimum wages between 2006 and 2008, unemployment would only have been around 0.05 per cent lower
.
So, over 06 to 08, the cost of giving the lowest earning 12% or so of the labour force an extra $40 week (before tax) was an extra 5,600 people out of work and on welfare. It’s not an unreasonable decision but, if you consider the impacts to society as a whole (and especially those 5,600 people), I don’t feel this was a great trade off.
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Furthermore, as discussed in the link and in the comments above, that was in the commodity boom good times. The negative impact in harsh economic times will be worse. Would it be offset by a greater net positive impact from the higher awards? I don’t think so.
FC: “The Charter of Human Rights is passed, as then it will be High and Federal Court judges making big decisions like these.”
You heard it first at LP,
OR: poppycock!
Ambigulous
This is quite well known. LP can calm down. It has no scoop.
“As one of what it pleases DD to call “people”, I will reiterate the reality: the FPC has frozen not just the minimum wage, but all award wage rates. Can DD’s erudite discussion be expanded to offer a justifiable defense of that?”
(1) It’s a strange question. Marginal workers exist in all workplaces, including those governed by award wage rates. To ‘freeze’ the minimum wage but to increase award wages would still cause sackings and prevent hirings, particularly where firms are uncertain about their likely future turnover. Think of increasing all award wage rates as supercharged idiocy, as distinct from the merely ordinary idiocy of lifting only the minimum wage.
(2) As an aside, what is the moral justification for the state saying that the work of one marginal worker is inherently more valuable than the work of a marginal worker in another industry? That is the effect of award wage rates.
“The AFPC’s own research has found that if they did not increase minimum wages between 2006 and 2008, unemployment would only have been around 0.05 per cent lower.”
In a booming market characterised by chronic labour shortages, the state managed to put over 5000 people out of work. This figure is apparently defensible. Fair enough. What do Mark and Matt C consider an acceptable number of jobs destroyed in today’s environment?
“I cannot believe the government was so silly as to suggest a wage rise in the present circumstances. There’s a time for everything, and now is definitely not the time to price marginal workers out of work.”
It’s simply bizarre. What would Gillard say if Turnbull had come out and said: “In response to the deteriorating labour market, I will force the states to increase payroll tax and distribute the proceeds to low-paid workers”? She’d call him a loon, that’s what. And yet she is complaining that the FPC isn’t in effect doing this.
BBB
Let’s make a few things clear.
(a) The AIG supported an $8 pay increase. Would DD, LO, BBB et al all be decrying the “number of jobs destroyed” if the Commission had followed this particular employer group’s recommendation?
(b) I’ve previously made the point that if any job losses can actually be traced – empirically and factually and not as a result of some economic hypothesis – to the impact of an increase there are other things that the government can do; and contrary to the assumptions made here by those opposing an increase, unemployment is neither a permanent state for the majority of people who will lose their jobs during recession or something that never happens to people when the economy is “booming”;
(c) How many jobs were “destroyed” as a result of the increase the Commission awarded last year, remembering that the economy has not been “booming” in the last twelve months?
BBB is at least honest insofar as he recognises that it’s award increases as a result of the award modernisation process which will come into effect down the path which the commission is trying to mitigate by having a lower base for awards.
That’s the thrust of the ACCI submission when you take away all the verbiage.
It’s about saving labour costs for employers who really will never shed labour because of a small increase – lest – horror – as DD says “profits disappear”. A better way of looking at it would be that employers are trying to maintain the profit share of GDP if you want to look at it in a macro perspective.
The least those who support this decision should do is be upfront in their opposition to minimum wages and awards per se.
It seems very easy indeed for people to pontificate and even moralise at the cost of those who clean their offices or take their money at the servo getting an extra ten bucks a week. It’s always about “cost to employers” and never about wages justice. That just doesn’t enter into it, for you folks, does it?
Go try to feed, clothe and house a family on the federal minimum wage.
BBB, you might like to investigate the meaning of the phrases “work value test” and “comparative wage justice”.
Just on the first, it should not surprise you to learn that the comparative value of particular jobs is assessed by employers too – if it was all up to the market, I don’t think HR and organisational psych people (or remuneration consultants) would have a lot to do.
It’s not some arbitrary decision, as you seem to imply.
I do recognise that the opponents of the IR system very rarely bother to find out how it actually works.
Mark
That comment is just dumb and mischaracterises our position.
Minimum and award wages are not effective mechanisms for achieving redistributive justice. They price marginal workers out of the labour market. This is not based on hypothesis or theory but solid empirical evidence, which you have chosen to ignore. The Fair Pay Commission makes the specific point that what holds during a booming market does not apply during a recession. That is completely obvious. What on earth do you even mean by solid empirical evidence? Are you saying that you think that the price elasticity of demand for low-skill, low experience workers is zero? If so, why don’t we just double their wages? If you agree that it is above zero, then tell me, exactly how many additional people are you prepared to see experience an unemployment spell to achieve your redistributive goals?
If the FPC had awarded $8 I would have said it was better than $21, but that there would still be employment effects. I would rather the award system were abolished and the minimum wage either reduced or frozen for a number of years and a proper negative income tax introduced.
I have made the point a number of times on this forum that unemployment is not a permananent state. But it has dreadful effects for many people that have to experience it. When people lose their jobs during recessions, some of those will not be able to find work again for a long time. You also have to take into account that many of the poeple affected are young, poor, disadvantaged people coming into the labour market for the first time. Higher legislated wages simply make finding work harder.
I worked at the CES in the 1990s and had to see large numbers of young people trudge into the office each day looking vainly for work. The sad thing was, that even if they had been able to find an employer prepared to take them on at wage low enough to make it profitible for the employer, it would have been illegal.
If the FPC had been aware that a global recession was on its way, it would not have awarded the increase it did. Simple.
Mark, you never seem to have absorbed that as much as you would like private businesses to behave like charities, they are not. If you force them to pay higher wages than they otherwise would, they will look to reduce their labour costs in other ways – by shedding labour or reducing their hiring rates. Simple. In the 1970s it was fashionable to believe that the wage share could be increased significantly without having to be mindful of the impact on unemployment. Following the oil shock of the 1970s real wages increased significantly. Not only was that inflationary but it contributed to a large increase in the structural unemployment rate. Even the ACTU recognised in the 80s that there was a real wage overhang and traded off wages for the social wage.
I find it even more offensive that you put it in terms of our being against low-income workers. I am not. I am for them. I want to see as many of them in employment as possible and able to work the numbers of hours that they would like. I want to see their incomes supported through the tax-transfer system. It is your policy preferences that are likely to have the most pernicous effects on the poor, not mine.
“BBB is at least honest insofar as he recognises that it’s award increases as a result of the award modernisation process which will come into effect down the path which the commission is trying to mitigate by having a lower base for awards.”
But not otherwise?
“The least those who support this decision should do is be upfront in their opposition to minimum wages and awards per se.”
I think I’ve made it fairly clear. Intervening in labour markets is a really dumb way of ensuring that everyone enjoys an acceptable standard of living.
“It seems very easy indeed for people to pontificate and even moralise at the cost of those who clean their offices or take their money at the servo getting an extra ten bucks a week. It’s always about “cost to employers” and never about wages justice. That just doesn’t enter into it, for you folks, does it? Go try to feed, clothe and house a family on the federal minimum wage.”
Spare me this ‘only we care’ rubbish. There are good arguments for lowering taxes on the low paid and retaining current rates for high-income earners. And for abolishing taxes that both reduce the demand for marginal workers and the cash price paid for their labour (e.g. payroll taxes). And a whole bunch of other things to guarantee living standards. Now what are these ‘other things that the government can do’ to which you refer?
The real problems here are that (i) you simply do not accept that there is such a thing as a marginal worker, and (ii) even if you did, you don’t think it’s that big a deal for low-skilled people to be out of work during a economic downturn.
BBB
“…work value test…”
Is this a euphemism for a market wage? Hmmm, perhaps not. Seriously, why have a bureaucratic process to simulate the market when you can have the real thing?
“Just on the first, it should not surprise you to learn that the comparative value of particular jobs is assessed by employers too – if it was all up to the market, I don’t think HR and organisational psych people (or remuneration consultants) would have a lot to do.”
This is nonsense. Since when are employers and their privately-hired, privately-paid HR employees and remuneration consultants not participants in the market? They are integral to it in the way that workers are integral to it.
BBB
Yeah take that you Leftists! Who are YOU to say that workers in China aren’t getting a good wage at $1.50 a week? Why do leftists want people to be unemployed by backing such a thing as a minimum wage? Us over here who don’t suffer from leftism much prefer as many people as possible to have jobs and not to price them out of the market, the market is king.
What next, sweat shops are a bad thing? If generous philanthropic business men didn’t have the good business sense to establish them then those people wouldn’t have jobs would they?
*dons smoking jacket and lights up another Cuban*
In many places in the world the answer to those questions (without the snark) is yes. In Cambodia the daily wage in a garment factory/ sweat shop is about $1.50. There is no shortage of takers of jobs at that rate of pay. The alternative for many young Khmer women from peasant backgrounds is unemployment except for seasonal work in the rice fields- and a daily income from that of less than $1.50- and therefore a regular income of $1.50 per day in a sweat shop is a good deal.
It’s a tough world for a lot of people.
Who are YOU to say that workers in China aren’t getting a good wage at $1.50 a week? Why do leftists want people to be unemployed by backing such a thing as a minimum wage? Us over here who don’t suffer from leftism much prefer as many people as possible to have jobs and not to price them out of the market, the market is king.
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H.R., what a salient point! Obviously what China needs to do to raise the standard of living of the workers is pass some minimum wage legislation mandating their wages as high as ours. It’s obvious to me now – overnight that would just lift them up to our standard of living. What possible downside could there be? I don’t know why we don’t all just legislate away more of our problems! It’s guaranteed to work!
Just embarrassing. Profound economic illiteracy masquerading as insight.
BBB
Doesn’t tax transfers just lead to government essentially subsidising private enterprise?
In any case no matter. We see the double standard applied again. The poorer don’t get their pay rise. The rich are $40 a week better off. How incentivising.
The Oz though knows the score. “Wages freeze to protect jobs ” reads the headline.
Away from my leftist rants and back on topic this will play poorly for the PM.
Tax cuts for the rich, an upcoming tax slug on cigarettes (a sin tax that will effect the poor more than the rich.)
And Rudd’s answer? A truck sporting “Supporting Jobs” driving around Turnbull’s electorate.
Lame.
BBB,
Simple. The real thing doesn’t work. It doesn’t function as markets are theoretically supposed to; and all the nice shiny market fundamentalist rules are unlikely (and definately not guaranteed) to apply in real life.
Yes, why not (as tssk points out) subsidise international investors at the expense of local tax payers.
I like it how The Australian says, in its headline, that Gillard was “furious” at the decision when what she said was:
“I’m not here to criticise the Australian Fair Pay Commission … the government understands that the Fair Pay Commission confronted the most difficult minimum wages setting decision for many decades that any industrial authority has had to confront”.
FWIW, I reckon the FPC did the right thing. It’s a timing thing. When the GFC is over, minimum wage workers should get the increase they’ve missed out on back, with interest. But now is not the time. A lot of employers are very nervous but they haven’t gone on a mass sacking rampage – yet. It would be a good thing not to frighten the employer class horses at this time. (When and if the revolution comes and the workers are running the show these considerations will be obsolete, but right now we have a capitalist economy.) Many businesses outside the award system have already implemented wages freezes.
I do note though the irony of LO’s comment that that low income people should be looked after using the tax and transfer system. Yes, indeedy. Who has just received a whopping $42 a week tax cut? People earning more than $180K per year! How much did the low income earners get? Three bucks.
There’s nothing quite like adding some insult to injury.
There seems to some confusion about what ‘tax-transfer system’ means in this context. LO and others are talking about the systems of progressive income tax and transfers to households (e.g. family tax benefit payments) which essentially take money from rich people and give it to poorer people (either through the social wage or through cash). What does that have to do with the taxation of capital in the hands of international investors vs. local investors, desipis?
tssk’s comment is nonsense: all government revenue is raised from private enterprise and so only private enterprise can subsidise other private enterprise (or, more commonly, public works).
BBB
BBB, I think the confusion arises out of people (myself included) feeling that mmany recent tax transfers seem pretty negligible at worst, and only equal at best for lower income workers, and thus people are a bit cynical that said transfers will happen.
As it’s only low-income earners that are on the award, however, raising it seems virtually guaranteed to benefit them, and not those on higher wages, as it should.
Believe me, I’m not opponent of tax transfers vs wage rise, but colour me unsurprised if it doesn’t work out that way in practice. Additionally many of these tax transfers are things that only happen once year around tax return time, which – whilst very nice for those of us looking to splurge – is not very convenient for low income households, whereas a slow but steady transfer would greatly help in meeting mortgages and other daily/weekly/monthly expenses.
I certainly don’t pretend to know as much (or barely anything) about economics as *any* of you guys, but I just feel a lot of the systems and compensations you talk about are more ideal-world scenarios than what has effectively played in the very political real world. Maybe the Howard years have made me paranoid in this respect. I would love to be surprised.
Man if you think that’s gonna happen, you have _way_ more faith in either party than I do.
One more thing – larger transfers like you guys talk about I think presume a financial literacy/competency that many lower-income households simply don’t possess. Not getting all Current Affair and Flat Screen TV about it, but lump sums may not be spent in the most beneficial way, whereas incremental sums can be more easily spent on incremental needs, often taking the place of a high-interest credit card payment.
*(This is not to say lump sums don’t help in all situations vis said high credit card debt)
BBB, because your providing below-cost labor to international investors that is only available because of the tax payer funded support to the individuals. You’ve got international companies benefiting from a healthy, educated workforce who are barely paying their low skilled employees enough to survive, let alone pay taxes back into the system that enables them to be healthy and educated. A minimum wage is about ensuring that companies live up to their social obligations, not about gaining some theoretical maximum of economic efficiency. It’s also recognising that a free-for-all employment market does not produce wages that reflect the economic output of the workers, or the full cost of that labour, and does not at all result in an efficient economy.
I’m sure I remember during the ‘boom’ that minimum wage shouldn’t be increased dramatically as we then wouldn’t be able to afford increases later on after the boom. It seems those on minimum wage are getting screwed in both boom and bust times with a “no really, we’ll make it up to you later” excuse.
Well, when you cut through all the bumpf what you get, is this:
The Fair Pay commission is the last bastion of the Howard Government.(well, one of them.) It did what it was supposed to do. Stuff the worker! What’s more it was allowed to do it under a Labor Government. It did it because Labor didn’t abolish it the moment it came to office and immediately put in its place a fairer system for workers.
Just sayin’.
Patrickg, neither BBB nor the FPC are talking about once-a-year lump sum transfers. Most households take family tax benefit as a fortnightly payment. It’s just like the old family payment system and, before that, child endowment, despite the Coalition’s fancification of rebranding it a ‘tax’ benefit. Most social security transfers however go to people who aren’t in work at all: that’s the way our social security system was designed to work.
desipis 50, no doubt many people will find ways of arguing that workers should never get a pay increase at any time. My argument was that there not be a genral increase in the minimum wage at at this time.
paul 50, the FPC delivered higher wage increases during the boom than was expected, much to the chagrin of employers and the Howard government.
There’s an awful lot of posturing and theatre in all of this, with all parties delivering their set piece speeches.
Did God tell Ian Harper to go with this decision?
“To he that hath, it will be given”, perhaps?
desipis @ 50. Yep, because companies have a legal and moral obligation to keep costs low. If they are looking out for the social welfare of their employees, not only are they not putting shareholders above consumers they are breaking the law.
Still, let’s keep the system just the way it is. The poor? Let them watch flat screens. (I’ve always thought the flat screen quip bears resemblance to something said by the Paris Hilton of the French Revolution.)
That’s my recollection too, desipsis. Not forgetting also that since the mid-1980s workers have been trading off other things, such as compulsory superannuation and expanded workers compensation, in return for minimum wage stagnation.
Not forgetting also that since the mid-1980s workers have been trading off other things, such as compulsory superannuation and expanded workers compensation, in return for minimum wage stagnation.
AND the running down of public services in favour of privatisation. Escalating medical and educational costs. Clothes and food may be cheaper, but the cost of services is increasing and increasing.
Anthony @26, the argument is unchanged whether you have one minimum wage or a whole suite of them.
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Like LO, I’m no free-marketer who believes the labour market is just like the market for pork bellies. My professional training is in labour economics, f’rchrissakes. It has many potential issues of market failure and there are indeed some legislative interventions (including setting modest minimum wages) that will improve both equity and efficiency.
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But on the specific issue of the desirability of an increase in Australia’s high Federal Minimum Wage (including its flow-ons) in present circumstances, I reckon you’d have to have rocks in your head to want it. Folks we are facing the risk of a catastrophe here; several things (Chinese raw material hoarding, the timely stimulus) have delayed the tsunami from overseas but it may yet submerge us. If you are generous at the expense of low-wage employers at the moment you really risk it becoming at the unemployed’s expense.
A minimum wage is about ensuring that companies live up to their social obligations, not about gaining some theoretical maximum of economic efficiency.
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How did companies get these extra ‘social obligations’? Their obligations are to honour whatever agreements they’ve entered into with their employees, provide a safe workplace and not lie, defraud or steal anyone elses property. Companies don’t have an obligaton to provide welfare on behest of the government simply because they may potentially make a buck at some stage.
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It’s also recognising that a free-for-all employment market does not produce wages that reflect the economic output of the workers, or the full cost of that labour, and does not at all result in an efficient economy.
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Absolute rubbish. If a worker produces more they have more leverage to argue for higher wages, and they’re more valuable to their employers, so they have the incentive to pay it. The emperical evidence is undeniable, over the long term, over the whole society, the market alternative provides more utility than the one that is contorted in the name of ‘social justice’. But then again, ‘social justice’ tends to be about making people equal even if that’s equally poor, so maybe you’re right – markets just raise the standard of living for everyone rather than deliver that undefinable left-wing wet dream of ‘social justice’.
Yes, during the boom times the argument was that minimum wages shouldn’t be raised because it would add to inflation. Now that inflation isn’t the economic monster that it was the argument is that it will increase unemployment.
When you control the levers of power it’s your argument that gets heard.
Here’s the thing Helen, Liam and everyone else. Businesses want wages to go up. Well everyone’s wages. Except those of their employees. That way they can raise prices while keeping their margins higher.
Watch as the price of everything goes up while workers fall further behind creating a neat paper profit.
“the argument is unchanged whether you have one minimum wage or a whole suite of them”.
The Commission seems to be arguing that maintaining the real wages of the low skilled will price them out of the market. This doesn’t seem to amount to an argument against maintaining or increasing real wage rates for the higher award classifications. Or am I missing something?
Well we’re not arguing about the wages of the skilled, Anthony, we’re arguing about the wages of unskilled people affected by the minimum wage in their applicable award—by definition people with very little bargaining leverage. It’s generally people who’re unable to increase their productivity meaningfully: how do you ask a childcare worker or disability carer to add more measurable value?
I’m not necessarily against the idea that minimum wage workers should face wage stagnation or a real wage cut in recession time (my inner critic adds that I can say this as I’m not one myself). I simply would like the argument put in clearer terms—that the FPC is asking minimum wage workers to make sacrifices in the name of lessening unemployment.
In the good times, it’s easier that way to expect private enterprise to sacrifice profit for wages—or other things, like greater leave, flexibility, or worker ownership—in return.
Clarifying: childcare workers are actually relatively skilled in real terms but for the purposes of my argument, cannot easily affect the intangible “good” they produce, and thus have little market barganing leverage.
BBB, because your providing below-cost labor to international investors that is only available because of the tax payer funded support to the individuals. You’ve got international companies benefiting from a healthy, educated workforce who are barely paying their low skilled employees enough to survive, let alone pay taxes back into the system that enables them to be healthy and educated.
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This line of logic leads to a couple of situations. First is the international investors simply don’t invest in your country because your high minimum wages and restrictive employment laws make it not worth their while, and the opportunities their investment would create go elsewhere (usually where they are needed more i.e. to poorer countries! – that’s the market working to help everyone!). Or worse, as the international investors need the skilled employees more than the unskilled ones, they simply make up for paying the skilled employees more by paying the unskilled ones even less. After all, skilled employees have greater negotiating power, unskilled ones have less.
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Minimum wages stop the unskilled workers from participating in the environment that can skill them and provide them with opportunities for advancement. The tax/transfer approach takes money off the middle class and uses it to increase the standard of living of the working class without reducing their opportunities for advancement or life improvement through employment. Isn’t that what you lefties are about?
I highly recommend that everyone read Bill Mitchell’s writings on this subject, for a view from a professional macroeconomist who know’s what he’s talking about.
But without the extra apostrophe…
Liam, I am aware that the majority of employees directly reliant on award rates will be the less skilled, for thereasons you mention. However, there would be a significant number of more skilled employees earning above the federal minimum wage (albeit probably still clustered in the lower half of the wage distribution) who are also directly reliant on awards (because under the Coalition it was pretty easy for many employers to simply refuse to negotiate a collective bargain despite the wishes of a majority of their workforce).
Moreover, awards are commonly used to inform overaward rates through either collective agreements, AWAs or informal agreements. A study a couple of years ago showed nearly 50 per cent of all businesses base the wages and conditions of at least one of their employees on the rates as set out in an award. Sixty eight per cent of businesses that make informal arrangements or use Collective Agreements or AWAs, either use the award by direct reference or as a base model, when negotiating those arrangements. So while award terms and conditions are only used to set pay and conditions of employees by a minority of businesses (and in that way tend to disproportionately affect the low skilled), awards are being used as a resource by a majority of businesses.
Tell that to Sweden, OK?
Good link, Andos.
We’ve had a lot of cries of ‘rubbish’, ‘nonsense’ ‘embarrassing’ and accusations of ‘profound economic illiteracy’ aimed at those who do not support this decision but very little actual evidence.
Since you lot are the self described economic literates, perhaps you wouldn’t mind providing some.
BTW, assertion, however disguised, is not evidence.
The Fair Pay Commission was dodgy to begin with. First there was a huge gap between the end of the old system and the creation of the Commission, meaning that low-paid workers effectively missed out on a pay rise before it even began. Then the Commission handed down a very generous increase – though not as generous as seen when the gap between that two systems is taken into account – but that gap was mostly a political fix to make Work Choices look not so evil.
And now we see where the Fair Pay Commission’s heart really lies. Now, there is a case for handing down only a small increase, but inflation is still there – particularly for things like rents.
I love the high-sounding reasoning that is always given from employer groups (which is essentially what the Fair Pay Commission is) – we’re doing this for the low-paid themselves. It breaks our heart, but it’s out of our hands. It’s not us, it’s just economics.
Thankfully the Rudd Government is doing away with the Fair Pay Commission.
…I meant the first decision by the Commission was not as generous as it seemed – typing too quickly.
Tell that to Sweden, OK?
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Zarks, good point. If you’re willing to lower your company tax rate and remove most restrictions on foreign investment then you’ll get more of it. This can then be used to offset the high cost of living in your welfare state.
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Here’s some commentary on foreign investment in Sweden: http://www.nationsencyclopedia.com/Europe/Sweden-FOREIGN-INVESTMENT.html
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My observations suggest lefties tend to dislike unrestricted foreign ownership of companies and low company tax rates. You up for some of this?
I can’t speak for other ‘lefties’, but hell yes I’m up for it.
If we’re going down the Swedish path, can we have eighty percent unionisation and minimum wage rates set by collective pattern bargaining too?
I wouldn’t mind their education system either. Alos they seem to do rather well on gender issues.
The key question here is who should be making the key economic decisions?
Right now we have at least three players who can go off and do their own thing:
1. A government who believes that the economy should be stimulated during a recession by, among other things, growing the internal market by increasing the real purchasing power of low income earners.
2. A reserve bank that is obsessed with controlling inflation measured in $aus. As a result of this obsession, the reserve normally keeps interest rates above the OECD average. The result is that Australian industry is lumbered with higher than necessary capital costs and an exchange rate that doesn’t help us compete in the global economy. Hardly smart policy in a recession, particularly given our chronic balance of payments problem.
3. A Fair Pay Commission that has convinced itself that employers will take on extra people when their internal markets are being reduced by the steady decline in the real puchasing power of the minimum wage.
It is about time that the government stood up and said that managing the economy in difficult circumstances is not being helped by the reserve and FPC wandering off and doing their own thing. The government should insist that it will make the final decisions and it is the role of both the reserve and the wage setting organization to provide independant expert advice that is published after the dgovernment has made its decision.
This decision is effectively a minimum wage cut. It will lower the living standards of those million+ Australians who live on the minimum wage. There is absolutely no justification for cutting the real minimum wage. It will not save jobs. A CPI-linked increase in the nominal minimum wage of $13.60 per week would have been fair and affordable for employers.
They do a good line in lesbian sperm thieves, too. I have to say I’m warming to this idea.
OK, folks, next steps: break out the L’Oreal “Extra Light Ash Blond” and move Australia a coupla thousand kilometres closer to Europe. Everybody get out and push.
P.S. Sverige
Realised as soon as I pressed “submit”, Sideshøw. To the sauna for corrective birch-lashing! And I’ll have some herring and the vodka bottle too while we’re at it.
True Scandinavian story: a friend of mine at uni wento on exchange to Sweden and Finland. One of the host families she was staying with asked her, at about 7am on a Sunday morning, if she was going to follow them to church. When she told them she wasn’t religious, and even if she were to follow a religion, she’d be Jewish, the response was:
Sweden – isn’t it a bit cold?
@38
You’re entirely missing the point, BBB. I’m suggesting that many employers use a variety of mechanisms – based on various methodologies of determining work value – to determine pay rates and classifications which are basically very similar to techniques employed by the AIRC to determine work value, and thus the comparative pay rates across different awards.
I used to be involved with this stuff years ago – it’s not that there’s some mythical market where every employee in private business has their wages set by a free bargain. Large employers are also bureaucracies and use techniques grounded in professional knowledge to assess pay.
So if the state walked away from employment regulation tomorrow, it wouldn’t be as if there were suddenly a market utopia. It is that those who lack bargaining power would lack fairness and protection in wages fixation.
And on Liam’s point – these decisions don’t just affect those who are “award dependent” – Anthony is quite correct that the pay rate of many employees in smaller businesses is essentially determined with reference to awards, even when they are receiving a pay rate higher than the award. Similarly, awards provide the basis for enterprise bargaining in many instances.
LO, we’ve had this argument before. What I’ve been saying to you is that the “marginal worker” will have their employment determined by a range of other factors than the rate of their pay. That’s completely missed by economic modelling, a lot of the time.
The lack of a neat fit between the demand for labour and the price for labour should be starkly obvious from what economists are pleased to call “labour hoarding” in this recession – that is to say, maintaining employees on fewer hours rather than casting them adrift. It would have been open to the Commission to use this as a justification, and it would have made somewhat more sense than the market theology that is actually being used to support the determination.
Elsewhere: Rob Corr
Mark, please, where did I say that the wage rate was the only factor taken into account by firms making hiring/firing decisions? With respect to employment, what is important is that there is a clear non-zero price elasticity of demand and that elasticity is HIGHER for the most vulnerable groups in society.
To other commentators. Where has anyone seen me write that I applaud the recent tax cuts to high income earners? Personally, I would like to have seen those tax cuts scrapped and the money used for other purposes. To repeat, what I am saying quite clearly, is that the government has other tools at its disposal to insure that low income households have an adequate disposable income. The fact that they choose not to deliver such a system, and instead engage in cheap shots at the FPC, suggests that they are not serious about tackling disadvantage at all.
That dicussion about Chinese and developing country wages says so much. Some poeple here seem to think that a wage is some sort of social construct where it doesn’t have to have any relationship with a workers’ productivity at all! Productivity levels in poor countries are lower, hence wages are lower. Multinational firms, on average, actually pay higher wages and offer better conditions of employment than domestic firms in developing countries.
I presume that desipis is suggesting that the labour market is monopsonistic (employers have monopoly power in the labour market), and hence wages are held below the market clearing level for some workers. There is indeed a growing literature examining the impact of monopsony on wages but you need to remember two things. First, Australia’s system of industrial relations has ensured that wages for the low skilled have been held above market clearing levels, not below. There is a reason why Australia’s minimum wage regime is the most “generous” in the OECD. Second, while theoretically plausible, empirical support for employers exercising widespread and economically meaningful monopsony power in Australian labour markets is actually pretty thin on the ground.
With regard to the boom/recession stuff. Let me clarify. There are a number of people who have long regarded Australia’s minimum wage has being too high. I openly admit to being one of them. During the boom some did make the argument that increases in the minimum wages should be limited because of their inflationary effects. But let me clarify. Minimum wage increases are only inflationary to the extent that they are not aligned with productivity increases for the workers involved. Moreover, the impact of FPC decisions on inflation in recent years has been pretty minimal. Of course, if, the minimum wage had been increased much more rapidly, the inflationary consequences would have been significant. So, when debating the minimum wage one has to differentiate between the impact of its level (what would the unemployment rate be if it were closer to its market clearing level) and its growth rate (are increases in line with productivity growth).
And John D, I am a little confused, are you suggesting that Australia should be fixing its currency to the USD rather than allowing the exchange rate to float? What are you suggesting should be the alternative nominal anchor?
Mark: great link, cheers.
LO: your posts are too long.
“Of course, if, the minimum wage had been increased much more rapidly, the inflationary consequences would have been significant.”
But of course, good chap. I can see through time and across universes, and I KNOW what would have happened if we didn’t cut the minimum wage!
“BBB, because your providing below-cost labor to international investors that is only available because of the tax payer funded support to the individuals.”
desipis, isn’t this an argument against the social wage and against the core philosophy of social democracy?
BBB
LO thanks for your posts, I found them detailed and illuminating.
Being simplistic I have paraphased your detailed posts as
- increasing minimum wages won’t have much effect on employment,
- the tax cuts given to high income earners shouldn’t have happened,
- if the government wanted to prop up low income earners it can raise the tax free threshhold to $27,000 [rather than providing a low income rebate when you submit a tax return]
It is more complicated than than I am afraid Billie
1 – in aggregate a small increase in the minimum wage will not have much of an additional effect on employment.
2 – larger increases will have larger effects
3 – the impact of increases in the minimum wage will differ across types of worker
4 – the level of the minimum wage is too high and prices many low-skill, low-experience people out of the labour market
5 – Australia’s system of tax/transfers is not progressive enough and doesn’t prioritise work adequately.
6 – The tax reductions in the most recent budget were short-sighted because Australia now has a structural budget deficit and there was little evidence that existing tax rates had large disincentive effects.
Andos, I apologise for the length of my posts, but these issues are complicated. Unfortunately sound bites only get you so far if you want to analyse things comprehensively.
Nobody is forcing you to read them.
“the level of the minimum wage is too high and prices many low-skill, low-experience people out of the labour market”
That, LO, is an argument (albeit contested) for cutting the Federal minimum wage. It is not an argument for cutting all award rates of pay, which is what the FPC has done.
I know that harping on this makes me sound like a broken record, but, heck, records were made to be broken!
Surely we should have some attentiveness to the distinct mode of Australian wage regulation, and hence distinct nature of the FPC’s determination, rather than just reiterating arguments that come from jurisdictions that have a single minimum wage.
Okay Anthony, I would like to see Australia’s system of award wages, with all of its complexity abolished. Alternatively, just freeze all existing award wages until they become non-binding.
That in effect was what the Howard government did in 1996, LO, when paid rates awards were abolished – in a very slow fashion. Hence the reason for the “modern awards” provisions in the Fair Work Australia bills and Labor policy. While there was a belief that was widespread on both sides of the fence in the 1990s that bargaining would become the main method of wages fixation, that never happened. It didn’t happen precisely because most smaller employers aren’t interested in bargaining, and want a convenient legal benchmark for their pay rates. That’s also with the FPC – who probably didn’t understand this – had to release a schedule of award adjustments when they made their first determination, causing a lot of confusion and negating the practical impact of their first rate adjustment.
It would be helpful, as I said before, if people actually understood how the system works and what its history is.
I’m not convinced, with respect, that you do know how awards actually work, which I think is also Anthony’s point.
I’d be more willing to engage with your critique if it were based on an understanding of how the system actually operates, and the reasons why it operates as it does.
In short, my point is that if you think – in the absence of awards – there would be a market style of bargaining for the fixation of wages for many low skilled and semi skilled jobs, then the evidence of the partial erosion of the significance of awards under Howard’s legislation belies your belief.
The practical implication of your argument is for a much lower level of wages across a large proportion of the workforce.
I worked for a union Mark, I know thoroughly how awards work. I hate the existing system and its complexities and think it serves very little useful economic purpose. Of course, doing away with awards would be an enormous change on the system that we have currently, and the transition would have to be managed carefully. Granted that small firms don’t want to engage in bargaining – but for many they could simply benchmark their wage rates on the provisions contained in EBAs that affect similar staff and vary them as they see fit. Alternatively, they could simply pay what they think is appropriate and as long as it exceeds the minimum legal amount (set at a very low level) it would be legal. Firms that try and pay their staff to little will quickly find that over time they cannot hire staff and lose them to other firms. But that is an argument for another day and I didn’t want to get into it in this discussion because my major concern is the binding minimum wage. I still don’t see what the problem with freezing all award wages is. If a given employer feels like it is appropriate to pay above the award because their circumstances make that appropriate, they are free to do so. I see no reason for the government to mandate that they pay their staff more however.
So what you’re saying LO, is that the government has other means to effectively increase the money that low income earners get, and that pay increase is not a good way of doing it?
But to that I counter, what does it matter if there are other means, if the government is not going to use them? The hypothetical is purely academic.
The real questsion i: Is more money to low income earners better than a cut in money to low income earners?
But I feel you’ve nailed your colours to the mast somewhat here, believing as you do that minimum wage is too high in Australia. You would presumably oppose any raise until it sunk to a level you were happy with.
Without a complete derail, I would argue that’s it’s pretty easy to think the minimum wage is too high when you’re not on it, even more so when you’re working full-time.
Howard’s legacy of a casualised workforce had both positives and negatives: it’s certainly insulated a proportion of the population that would other be fired like they were in the nineties recession. However it’s also meant that for those on a minimum wage and working less than full time it’s progressively more difficult to meet the cost of living. This is where Australia’s large underemployment issue really bites, and why I believe a raise in the wage is so important.
The FPC has not cut all rates of pay. It has left the nominal award rates fixed. Because of inflation, that implies that for those firms that don’t adjust their rates up unilaterally, there will be real wage cuts for those workers. But what is wrong with that? The FPC has simply stated that it sees no economic reason in the current environment to mandate that firms using awards raise their wage rates. If firms don’t adjust their rates up unilaterally it will be for good reasons related to the fact that the circumstances of their businesses don’t warrant it. Small firms are definitely NOT monopsonistic players in the labour market! They are price takers. The reduction in real wages for those currently on awards will mean that each worker is more likely to retain their job in the downturn than they were before and that more workers entering the market will find employment. Think of it as like an insurance policy and the cost is being spread around all affected workers.
Mark, abolishing awards would mean lower wages for some sections of the workforce, if it turns out that employers were being forced to pay workers on awards more than their productivity levels would have warranted. But there would be nothing to stop employers that felt it was warranted to adjust rates up over time in line with productivity and the need to be competitive with other firms operating in the same labour market. So, most workers would continue to see their wages increase over time in line. It isn’t a market style of bargaining, it is simply that there are forces at play that make it hard for wages to get too far out of alignment. If firms pay too much to workers then it is hard to be competitive in the goods and services they sell. If they pay too little, then they lose staff over time or see the quality of their staff decline, which will affect their productivity.
And patrickg, if the government is not going to use them, then that is their choice. I disagree with them. If what you are getting at is whether centralised wage adjustment for workers on very low incomes could be considered a second best policy in the absence of the government moving toward a more optimal system, then yes, it is possible. But it would involve a trade-off – higher incomes for some workers, lower incomes for those that lose their jobs or can’t find one. I guess it is up to individuals to think about whether they find that tradeoff acceptable.
Mark, I argued LO’s points vigorously as early as November in the Australian. I suppose it became their banner approach to the issue that Michael Stutchbury has taken up with relish.
All I would say is that people who would argue for major increases in wages for the low paid – instead of other better mechanisms like tax credits – will carry the ‘jobs of dead men around their necks’.
Modern Labor is more than unions indeed it can often be opposed to their wants to achieve redistributive justice. Cartels are not always good.
And Patrick, I am happy to be up front with where I stand. I don’t think the market for labour is perfect. There is a role for some regulation to ensure that workers receive basic rights and protection. To me, that involves a minimum wage that is low, and minimum conditions of employment to help ensure that workers are not exploited. Of course, it is very difficult to determine the point at which exploitations begins. However, I also don’t think that the labour market is the place for social engineering. As much as I respect Mark, I don’t think he fully understands, or is prepared to believe, that forcing wages up for marginal workers or excessively meddling in firm decisions, has adverse consequences. It seems that he, and you, are prepared to live with higher unemployent and underemployment so that those people that retain jobs can receive a higher wage. I’d simply like to see the government accept its social responsibilities instead of foisting them on to employers and the unemployed.
I’d simply like to see the government accept its social responsibilities instead of foisting them on to employers and the unemployed.
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Well said. If we’re going to do it then it should be done through the government and the market left alone to actually produce some wealth to redistribute in the first place. It also makes the distortions from these actions clearer for all to see – so we can see if a policy is working or not.
“The practical implication of your argument is for a much lower level of wages across a large proportion of the workforce.”
Really? A ‘large proportion’? Do you know what proportion of workers are currently paid the minimum allowable under the relevant award or the minimum wage? On a quick search I could not find this figure. Also, if, in the absence of awards/the minimum wage, wages would fall to a ‘much lower’ level, then isn’t this strong evidence that the ‘work value’ tests used by the State are broken and even more likely to cause unemployment? But clearly you are right that lower wages for some workers is the inevitable result of abolishing labour price controls. That is the price of getting the very low-skilled into jobs. The social quid pro quo has to be to implement a more progressive tax-transfer system, which I am all for.
BBB
I agree with BBB entirely
Just as a little aside, don’t you think it is time you changed the description of yourself? In most of the policy debates we have had and I have seen you participate in over the past 12 months on LP you have revealed quite a penchant for statist solutions!
“Something of a libertarian morphing into a social democrat with a preference for non-statist solutions”
BBB, the most recent ABS figures I could find show:
Most of the “unregistered individual arrangements” are what I’ve been talking about – rates of pay which are in effect tied to awards, but not formally within the award system for a range of reasons. Note also that the pay rates in many collective agreements have a relativity to award rates, and thus bargaining outcomes are affected by the award minima, as I’ve stated repeatedly.
No doubt if your prescriptions were followed, you and those who think like you would be more than overjoyed to pay higher rates of income tax or to see higher rates of corporate tax applied in order to finance the very extensive “social quid pro quo” which would be necessary. Anything but the dreaded imposts on business. I’m sure you’d very happily pay more tax to have a more perfect market in labour.
It’s unrealistic, politically infeasible, and basically a cop out.
You and LO believe many Australians are overpaid. The logic of your position is as simple as that.
Sorry, forgot to include the link:
http://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyTopic/27641437D6780D1FCA2568A9001393DF?OpenDocument
patrickg: “Howard’s legacy of a casualised workforce”
Well it may be the current situation, but PM Howard is not solely to blame…. the growth of P/T and casual jobs began decades earlier….
As long as you focus the taxes on companies which is where the benefits from low wages flow.
I remember digging out the figures on this on a previous occasion, Ambi. The rate of casualisation really began to take off in the last recession, and accelerated significantly post 1996 when the Howard government removed any legislative or award based restrictions on the number of hours casuals could work or on the proportion of employees in a particular classification who could be employed casually.
@107
Indeed, desipis.
But no doubt LO and BBB have some other economically rational reason why that would be a terrible thing.
Thanks Mark, I was going on (unreliable) memory only.
Again, the mistakes!!!
Australia’s corporate tax rates are not high by international standards. And do you guys not grasp that the incidence of a tax doesn’t have to fall on the sector upon which it is levied? The incidence of corporate taxes falls primarily on the customers of companies and the workers of those companies. And that isn’t even taking into account that in a world of relatively free capital movement raising the corporate tax rate would raise relocation incentives? Corporations are much more into tax shopping than individuals. Great idea for a country that runs peristently large current account deficits and therefore requires large capital inflows!
Btw, raising income and corporate taxes aren’t the only ways to pay for more generous transfers to low-income households. Proper land taxes could be levied and there is no reason why the GST couldn’t be raised. Every European country with a generous welfare state has a valued added tax almost double Australia’s and some more. I would be happy though as I said to have not passed the recent tax cuts for wealthier individuals.
And I can’t believe that you think casualisation has accelerated! According to the ABS casuals made up 21% of the workforce in 1992 and 25% in 2007. Of course the raw number has increased but that is because the labour force has grown so much. The share of casusals hasn’t changed much at all!
Just because you want something to be so doesn’t make it so…
“Casualisation of the Australian workforce has proceeded at a rapid pace, rising from 19 per cent of all wage and salary earners in 1988 to 26 per cent in 1996. Subsequent increases have been more modest, with 28 per cent of all wage and salary earners in a casual job by 2003 (see Table 1).”
From the parliamentary library.
So much for the significant acceleration under Howard!
Check out the para in this paper (3rd page), LO, headed “Has casualisation increased under the Howard government” for a more nuanced reading of the stats:
http://www.aeufederal.org.au/Women/Risefall.pdf
So, let’s see. You – as expected – reject an increase in company tax. One of your solutions is a higher rate of GST. Given what we know about the higher propensity of those on lower incomes to spend, that would hardly seem to be a good way of raising the living standards of those for whom you think a real wage cut is appropriate.
But, I’ll repeat, most of the proposals you come up with for a “quid pro quo” are politically very unlikely. In the real world, the decision you are supporting cuts the income of the vulnerable at a time when the sorts of costs (ie rent, food, health, education, etc) they have to meet are increasing.
I also think that employers should pay a fair and liveable wage to all they hire. You obviously don’t believe that. I wonder how many on high wages can justify those incomes in terms of productivity. That appears to be the only basis you’d allow for a return to labour, if I’m understanding you correctly. How that’s squared with “the market will decide”, I really have no idea, because it seems to me, as I’ve said, there are significant contradictions in the arguments you and BBB are making.
Mark, that paper is a critical analysis of what casualisation means, it does not contradict the fact there has been no acceleration in casualisation under Howard! An increase is not an acceleration. Acceleration is an increase in the rate of change. You slipped a derivative somewhere I think!
I’m aware of the regressive nature of consumption taxes. However, they are less distorting than most other taxes and if combined with significant additional progressivity in income taxes and greater work incentives for low-income households, I think it would be a superior way to go. It is certainly possible to both increase the GST and make low-income workers better off.
I think it is rubbish that it is politically unrealistic. Are you saying that a government that just dished out tens of billions in stimulus payments couldn’t directly boost the disposable incomes of low-income workers? Do you really think there would be a political outcry if they did?
What is a fair and reasonable wage Mark? And how does that differ from what a firm can afford to pay? Do you understand anything about income and substitution effects in factor markets? Do you really think it is possible for bureaucrats to micromanage the labour market without getting things seriously wrong?
It is really quite simple. If, in a competitive market you try and pay people more than their productivity justifies, firms will substitute away from them. In addition, if those firms operate in traded goods sectors, and have no ability to pass their unit labour costs on to consumers, then those firms will shrink.
I really don’t see any contradictions in my argument. There are of course sectors of the economy (the government sector) where it is more difficult to tie wages to productivity outcomes because productivity is difficult to measure. But even there the government has to compete with the private sector for labour so compensation (taking into account other factors such as greater job stability, etc) cannot be too far out of alignment with private sector norms.
Exactly which high wage workers in Australia are paid without relation to their productivity levels? Are you talking mainly about senior executives? If so, I’m happy to see serious consideration given to whether executive pay arrangements involve inappropriate incentives and if possible to do it effectively, see pay more closely tied to longer-run rather than shorter-run developments in the companies they run.
“As long as you focus the taxes on companies which is where the benefits from low wages flow.”…”Indeed, desipis. But no doubt LO and BBB have some other economically rational reason why that would be a terrible thing.”
As LO suggests, all tax is paid by humans in one way or another. Workers pay company tax through lower wages. Consumers pay company tax through higher prices. Shareholders pay company tax through lower dividends/capital gains. Company tax is just a comparatively efficient way to get a hold of a lot of cash. It would be interesting to see a full analysis of how progressive is company tax in reality. I would have thought that the incidence of corporate tax is mostly on labour in the long run, and indiscriminately so as between rich and poor workers. Happy to be corrected on that though. My guess would be that company tax is in fact far less progressive a tax than income tax, which would imply that anyone actually interested in fairness (as opposed to self-indulgent grand narratives about workers vs. big business) would want to weight taxation towards income taxes (which, of course, include capital gains and which can be far more effectively targeted toward the rich).
“No doubt if your prescriptions were followed, you and those who think like you would be more than overjoyed to pay higher rates of income tax or to see higher rates of corporate tax applied in order to finance the very extensive “social quid pro quo” which would be necessary.”
I’ll leave corporate tax aside. As to income tax, well, not overjoyed. But I would recognise it as necessary and desirable, not to mention morally justified. Is there some rule somewhere saying that People Who Don’t Agree With Mark must be in favour of the wholesale abolition of progressive taxation and welfare payments?
“I remember digging out the figures on this on a previous occasion, Ambi. The rate of casualisation really began to take off in the last recession, and accelerated significantly post 1996 when the Howard government removed any legislative or award based restrictions on the number of hours casuals could work or on the proportion of employees in a particular classification who could be employed casually.”
Sounds very wrong. I would think the casual workers as a % of the total labour force grew more in the five years before Howard come to office (ie. in Keatings PM’ship, let alone Hawke’s) than during five years after (i.e. the years immediately following the WRA). Far from ‘accelerating’ as you claim, it probably decelerated significantly under Howard. Do you have any figures to back up your assertion?
BBB
BBB, see the figures I referred to above. Mark was wrong.
I think if you follow the link, you’ll find that a very large percentage of the jobs created under Howard were casual. That’s something rather different from the replacement of previously full time labour with non-standard employment. Perhaps my choice of words was unfortunate, though, and I apologise for that – I was working from memory, as I said.
LO, if you think any government could increase the GST without severe political damage, you’re dreaming. As I recall, as well, it needs the agreement of every state parliament.
And I’d also point out again:
(a) many wages are in effect set by bureaucrats in private organisations, or by employers who look to the award for guidance, rather than by bargaining;
(b) awards are not in fact set by bureaucrats but by a quasi-judicial process in which capacity to pay on the part of employers is an important criterion, as those who’ve had to make submissions to the IRC are well aware – note also – in the real world – the significant influence employer associations are exerting on the award modernisation process right now.
Again it seems to me that your arguments have little reference to the actual processes by which wages are determined – whether through what is in effect unilateral action by employers or through arbitral processes. And I don’t see that private profit is some sort of sanctified sphere and that the state should take up the slack where employers cannot afford or bring themselves to reward labour appropriately.
If some employers go out of business, because they cannot compete except by reducing the price of labour, then that’s by no means a bad thing – in fact in Sweden it was a deliberate aim of wages policy to improve the efficiency of the economy.
It seems to me that your arguments just hypostasise the rights of private property, through completely denying the rights of labour to a just reward determined on moral principles rather than economic calculation. That’s fine – that’s your position, but if (and I accept your bona fides here) you nevertheless don’t think that people should have a rate of income which doesn’t allow them to live in security and dignity and to develop their capacities, then I think you have to recognise that any government which introduced the sort of labour market deregulation you favour would be unlikely to take action to ensure that.
I also suspect that any reduction of the minimum wage would also see in its train calls for the dole to be cut to preserve “incentives”. There’s a recipe in all this for an underclass and for the working poor to be a much larger proportion of our citizenry than currently the case. That much is plain to me.
“BBB, see the figures I referred to above. Mark was wrong.”
Yes I see that now. It doesn’t even come close to supporting Mark’s claim. For good measure, Mark calls it a ‘nuanced’ reading of the statistics when it is in fact a bog-standard recitation of figures showing that casual employment increased following the election of the Howard government (relatively marginally, by the way, compared to that experienced under the ALP). As if that were in any doubt at all. Extraordinary.
What you are saying about consumption taxes makes a lot of sense. There is no reason why the combined effect of a higher GST and modified income tax scales / cash transfers cannot be as or more progressive than current arrangements. To boot, higher consumption taxes can be part of the solution to low household savings rates. They can contribute to the re-balancing we need in this country: away from consumption and towards real savings. All you need to do is have a holistic approach to fairness in taxation, which Mark seems unable or unwilling to adopt.
“I also think that employers should pay a fair and liveable wage to all they hire. You obviously don’t believe that.”
Here’s a real contradiction: employers do not need to pay a liveable wage where the state levies taxes to provide services for which a worker would otherwise have to pay directly. Can there be any doubt that the welfare state depresses the cash wages demanded by workers and paid by employers? Now you support the welfare state wholeheartedly (I think). And yet an appropriately modified tax-transfer system, as described by LO and I, is unacceptable to you. So this leads to the next question: what is the real difference between the elements of the social wage comprised of government-delivered services and those comprised of cash payments, apart from the obvious difference which is that the latter treats citizens as adults rather than as children?
BBB
No, the real question, BBB, is why you wish at all costs to preserve the poor old employers from having to pay out of their own pocket a living wage for their employees. I’d submit that’s an ideological choice rather than anything particularly rational.
“Again it seems to me that your arguments have little reference to the actual processes by which wages are determined – whether through what is in effect unilateral action by employers or through arbitral processes.”
If the only alternative to arbitral processes were ‘unilateral action by employers’, then clearly everyone would be on award rates down to the minimum wage. Which they are not.
BBB
Mark, care to address the contradiction in your position that I have highlighted, instead of posting comments that seem to ignore pretty much everything in this thread?
BBB
No, that’s not a contradiction, BBB, because what I’m trying to encompass is a variety of forms of individual wage determination which are neither formally within the scope of the award or bargaining systems established by law nor really subject to bargaining. Therefore they are unilateral rather than bilateral or mediated through a tripartite process. They can range from the determination of salaries according to perceived or measured worth in organisations where there is no real individual negotiation to the practice of the “award plus five bucks” which is very common.
I’m merely trying to point out that a lot of wage determination takes place without either active state or union intervention and without any real contractual bargaining with an employee.
I’m not implying, and it’s a misreading of what I’m saying to suggest that I am, that all employers are stupid enough to want to pay their employees the bare legal minimum. Mind you, there are a lot that pay less than the legal minimum by the way.
Mark, when are you going to get it? You can force employers to pay your so-called “fair wage”, but you cannot prevent them from reducing the size of their payroll to compensate for that! They only partially pay out of their own pocket as most of the real cost is passed on to employees and consumers!
It is not a matter of competing the cost of labour down. It is a matter of having a system that ensures that labour is compensated for the value it adds to the firm – no more, no less! That is what is fair.
Honestly, you would benefit from some economics training.
Sorry, I meant the contradiciton inherent in the position that State-paid services are acceptable, even when they clearly depress cash wages, while abolition of minimum wages and awards combined with increased State-paid cash transfers threaten some sacred principle that employers should pay ‘out of their own pocket a living wage’.
BBB
Actually this argument goes to the heart of why I left my job advising the labour party but could never join the liberal party.
Mark, you are trapped in this partisan political frame of mind that forces you to equalise labour market deregulation with regressivity.
But there no logical reason why this has to be.
Labour makes the mistake of thinking that its interventions in the labour market don’t have regressive consequences by reducing employment rates for the disadvantaged.
The liberals cannot see or don’t want to see that considerably greater progressivity in the income tax system and a social wage provided by goverment is the necessary trade-off for labour market institutions that are more efficient.
As far as I’m concerned it is a pox on both their houses.
“Honestly, you would benefit from some economics training.”
That is not going to go down well.
BBB
“Mark, you are trapped in this partisan political frame of mind that forces you to equalise labour market deregulation with regressivity.”
Indeed. It’s so rich for Mark to claim that those who oppose his policy prescriptions are being ideological in circumstances where he refuses to acknowledge that the intended outcomes are more or less the same and where he is (apparently) happy to ignore the interests of the very low-skilled who invariably get rolled by structures like awards, the minimum wage and industrial arbitration, which are now more about preserving the interests of unions and their officials than about improving the lot of the working class. His mind is so inside the union-sponsored system that he simply cannot break out of it, it would seem.
BBB
I think what you find would be the perfect optimun would be this.
Get rid of the minimum wage.
Reduce taxes for upper income earners and corporations.
Reduce public services.
Raise taxes for those on the lower income end.
This would of course incentivise the workforce. And create a market for the next Charles Dickens or Jonathan Swift.
And what price good literature? Fair points all.
BBB
Being somewhat self-centred, as in viewing most every situation for how it will impact upon my life, I’ll state here what action I would have taken, and why, if the Fair Pay Commission had awarded a pay rise:
I have 60 employees. If each were granted at $21 per week pay rise this would cost me an extra $76,500 per year.
That comes directly out of my take home pay. I can no more stand a cut in pay of $76,000 than can most commenters here. I would have had to dismiss Two employees.
Hmmm… a little too factual and empirical for this forum, steve. Didn’t you know that small rises in wages do not have employment effects? It says so right at the top of this thread.
BBB
It’s very simple really. If employers after doing their maths and financial planning figure they can’t afford to run a business at all or in the way they formerly have by paying a level of wages the most representative groups in society say is fair, then they should get out of business altogether (their choice) or reduce their overheads in other ways. It’s their problem, and frankly a few less pubs or motor vehicle repair shops or takeaway junk food bars ain’t gonna be missed. In fact, it would be a social good to see many businesses like these go to the wall. Rest assured others will still exist and meet demand, particularly in a recession/depression. After all, we are in a period of overproduction of goods and services due to the anarchy and irrationality of the capitalist mode of production.
If employers after doing their maths and financial planning figure they can’t afford to run a business at all or in the way they formerly have by paying a level of wages the most representative groups in society say is fair, then they should get out of business altogether (their choice) or reduce their overheads in other ways.
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What about an employer does his financial planning and works out what he can afford to pay an employee and advertises the job. If someone wants to work at that price they can, and if they don’t want to then they don’t have to and they can stay on welfare? What is unreasonable about this?
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It’s their problem, and frankly a few less pubs or motor vehicle repair shops or takeaway junk food bars ain’t gonna be missed. In fact, it would be a social good to see many businesses like these go to the wall. Rest assured others will still exist and meet demand, particularly in a recession/depression.
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You know what, Phil, I think history shows they will be missed. And quality of life will go down slightly for all of society because there’s less wealth produced to go round. And because you’ve actually reduced production that ‘recession/depression’ will continue for a bit longer than it otherwise would, hurting everybody.
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But at least we can have a warm and fuzzy that no one was ‘forced’ to work at a price that ‘the most representative groups in society’ i.e. unions and lefties didn’t like, and that we really fucked over that small business owner and there’s no way could get ahead that might make us feel jealous. Like I say, warm and fuzzy – in a lefty fashion….
That’s the standard argument Michael, I disagree. And you haven’t shown how the reduction of inessential, oversupplied services like pubs and junk food shops would reduce the quality of social life. That is a ridiculous and unsubstantiated assertion and flies in the face of common sense alone.
No, a decent society should exhibit at leadership level a basic commitment to human dignity and well-being and a fair day’s pay for the lowest paid is a pre-requisite for that. Moreover, a decent, civilised society must continually worry about and figure out ways and means of extending social concern for human dignity and well-being. The other way lies the jungle.
The decision of the Orwellian named Fair Pay Commission did none of these things. It therefore stands condemned of endorsing and promoting an unjust, heartless society where such timeless humanitarian values count less than the ability of some grubby cockroach capitalist to be maintained in the manner to which he has become accustomed.
BBB & LO, could you please provide a list of the low min. wages countries that you would like Australia to follow? Currently, our min. wage as a USD dollar value of hourly work is similar to a number of other OECD countries, and not the highest!!##@! etc.
As you know each country has a different set of circumstances in respect of the mix of the economy, the tax and benefit system, percentage of collective bargaining across workforce, long term unemployment and measurement of, workplace participation and measurement of, rates of unionisation, skilled and non-skilled immigration rates, educational attainments and work entry levels, levels of long-term social cohesion, housing affordability, rental markets, land value, ‘most liveable cities’ and so on.
Could you take the time to compare your ‘choice low min. wages nirvanas’ to this place holistically, than just purely on a small number of economic indicators, before providing your list, to avoid us all going – “eerww, who’d want to live in New Zealand.”
Thanks.
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Oh come on. That is the biggest pile of horseshit I’ve ever heard, and typifies why I have such a problem with you free market evangelists.
You have the temerity to call statists like us hopeless optimists when your conception of the ‘market’ is underpinned by the most idealistic and naive notions. 100% informed actors making rational decisions, etc. Honestly, it has about as much in common with the real world as an episode of Big Brother.
Underemployment is a huge problem (“According to Morgan, in June the number of underemployed jumped to an incredible 967,000 or 8.8 per cent.”). The minimum wage is difficult for a family to get by on as it is. If you’re part-time, or casual, or – god help you – a junior, it’s next to impossible.
Your talk of other mechanisms is irrelevant to this discussion. Those measures are not being discussed and nor at any time are they likely to (I wish they were).
When you talk about imposing penalities on companies et al with a raise in minimum wage, you fail to acknowledge that the converse of this is a penalty directly on people who can least afford it.
You talk of businesses having to close etc. I find this somewhat hypocritical given your opposition to bail outs for the Australian Automotive industry, on grounds that it’s an unsustainable business.
I think we’re going to have to disagree on this one, your arguments to your economic authority are sounding weaker each time you repeat them. If we need some training in economics (and I’m the first to admit it), maybe you need some training in poverty…
Steve,
How the hell are you still in business if you’re only reaction to cost increases is to cut staff?
Michael,
That sort of system leads to a massive shift of wealth from those that supply labour to those that own capital, creating an economic based class system that isn’t in the interest of society or the economy.
That may be true, but how much harder is it going to be for families to survive on welfare benefits only if the are fired or the company they work for goes out of business?
you’reyour.Mental note: no clicking submit until I’ve had my first coffee of the day.
Phil: ‘That’s the standard argument Michael, I disagree.’
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You might disagree with the standard argument that 1+1=2, but I don’t think we should implement your argument with force of law. What I’ve stated is really how the production process works, you might not want it to be this way, but you can’t legislate away the facts – you have to work with them.
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Phil: ‘And you haven’t shown how the reduction of inessential, oversupplied services like pubs and junk food shops would reduce the quality of social life. That is a ridiculous and unsubstantiated assertion and flies in the face of common sense alone.
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So you only want to see minimum wage laws applied to ‘services like pubs and junk food shops’? You didn’t say this previously?!
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desipis: ‘That sort of system leads to a massive shift of wealth from those that supply labour to those that own capital, creating an economic based class system that isn’t in the interest of society or the economy.’
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You’re the one trying to create a welfare class. A vibrant market creates social mobility and is the anithesis to a class society. Yes, there are people at the bottom, but they’re often on the way up (and some people on top are on the way down), but overall a ‘rising tide raises all ships’ or we have trickle down wealth or whatever you want to call it – on average everyone’s standard of living goes up. Your system is trickle up poverty.
It seems that my respectful call to the assembled economic gurus above to provide actual evidence to support their claims has fallen on deaf ears, unless you count the grim prophesy of an apparent pub owner as evidence, which some gullible people seem keen to do.
Maybe these economic geniuses can point out the flaw in this Priceton University study which shows that:
The increase in New Jersey’s minimum wage probably
had no effect on total employment in New Jersey’s
fast-food industry, and possibly had a small positive
effect.
Now I know that it is much easier to term views that you disagree with ‘rubbish’, nonsense’ etc etc, but could someone explain to me why this study’s conclusions are incorrect, because they would seem from a self proclaimed economic illiterate like myself to contradict most of the supporters of the FRC decision’s claims.
I’ll even provide the link to make it easier for you.
Arr, need a coffee as well! Make that Princeton University.
Quite, Despisis. It’s not as if the obligation to make productivity gains for growth in income applies only to workers.
patrickG,
The labour/capital substitution effect is one of the largest areas of empirical literature in microeconomics. Indeed, so important and empirically valid is the relationship, that it has given birth to entire spheres of econometrics (what do we want? Cobb-Douglas production functions! When do we want them? etc etc..)
At it’s most basic – if labour becomes too expensive, firms will simply buy machines. Sophistication grows exponentially after that.
LO and BBB, you’re fighting the good fight – I feel your pain
Adrian,
The higher the minimum wage, the larger the effect on employment is for each additional dollar increase of that minimum wage.
So in the US where minimum wages are relatively low (so low IMHO that it does create a net loss to human welfare – something the study itself appears to find, at least in it’s consequences), a small increase wouldnt be expected to have any significant impact on employment.
However, if the minimum wage in NJ was twice it’s current rate, if it was relatively high, than a small increase to the minimum wage would be expected to have a larger effect.
The size of the effect is a function of both the size of the increase AND the size of the existing minimum wage level…. plus all sorts of other bits and pieces which LO and BBB have been very patiently trying to explain.
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Michael,
You’re implying I don’t advocate systems to get people off long term welfare.
An unregulated labour market will be anything but vibrant for the unskilled. I thought it would have been evident by the term ‘unskilled’ that the unskilled workers lack the skills (and resources) needed to act as rational market participants. A free market mechanism will produce nothing but oppression for the majority of unskilled workers.
Yes, a system (such as a free market) that encourages overall efficiency gains will generally lift the standards living for everyone. However, as I’ve pointed out above a market mechanism will not function as designed for unskilled workers and will not achieve the efficiency gains it’s supposed to.
I should add that this is dependent on the shifts in the wealth divide not counteracting the efficiency gains for those at the bottom, which for many liberal economic systems it will do.
Thanks Possum. Truly, I do take what you’re saying on board here – and I think really we all want the same thing, anyway. But my question really is:
I agree with this, but *when* is too expensive? For which jobs? This is the area I’m still not really clear on, and not really clearly on the evidence on either. And I question (just question, not deny!) whether the increase that was on the table would have done such a thing.
I would love to hear your thoughts about what – absent the tax-based solutions that LO and BBB refer to (not on merit, just by practicality) – would be a good solution to address the poverty-based concerns Mark, and I, and many others share?
I genuinely want to know what you would propose – I’m not married to a wage rise per se, but I see it currently as a trade off between rise, and no compensation at all. I personally think it’s worth the potential dangers – after all if we see a spike we can always freeze it again until inflation starts to catch up.
Yes, thanks Possum. It’s slightly clearer, now and I think patrickg’s questions are good ones.
Adrian: It seems that my respectful call to the assembled economic gurus above to provide actual evidence to support their claims has fallen on deaf ears, unless you count the grim prophesy of an apparent pub owner as evidence, which some gullible people seem keen to do.
Maybe these economic geniuses can point out the flaw in this Priceton University study……..
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Adrian, to do you disagree with the modelling methodology at Matt C’s link at the top of this thread?
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desipis: ‘A free market mechanism will produce nothing but oppression for the majority of unskilled workers.’
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Except provide them with a means to get skilled and a basic standard of living while they’re doing it. You’re sort of right, a free market mechanism will not help those who are unable to acquire skills eg. the mildly mentally impaired, or the single mum obliged to look after two toddlers and baby for the next few years. I’m not suggesting these people shouldn’t be helped through welfare. This doesn’t change our need to preserve a market mechanism that generates wealth and provides opportunities, or to uphold the moral position that capable people should exercise their capabilities to take care of themselves and not put a burden on others. This is the basis of a progressive society that provides a decent standard of living for everyone.
SATP, are you saying that every one of your employees is on the minimum wage, and by implication has next to no skills? I will think twice about drinking in your pub, and I certainly won’t be eating there.
LO, if you think that an increase in the GST is politically possible, then you are dreaming. The government has given Ken Henry the job of inquiring into the tax system, and he’s not even allowed to look at the GST, let alone recommend an increase in it. Increasing the GST would be about as politically popular as a return to conscription.
Hence all those robot workers in retail, hospitality, light manufacturing and labouring jobs we see everywhere, Possum?
Never trust a marsupial that can’t use apostrophes!
Let’s be charitable, adrian. Perhaps Possum was writing from the coffee shop and all the workers had been sacked because of the great impost their hourly wage made on their employer’s profits. The DIY coffee machine might have been a poor substitute for a Barista.
Yes indeed Mark. Or perhaps the robots that made the keyboard on which he was typing were demanding a wage rise and were replaced by cheaper, lower skilled robots manufactured by low skilled workers. Or something.
Interesting that the western nation that probably has one of the lowest minimum wage rates, the US, has an unemployment rate 4.5% higher than ours.
Yes, puzzling, adrian. Perhaps the theory doesn’t give us the whole picture? Who’d have thought? No doubt there’s a footnote to the theory which preserves it from troubling encounters with reality.
Possum’s argument is broadly correct but badly expressed. In industries like hospitality, machines can’t replace people. But one kind of labour can replace another. So if wages for unskilled people increase, employers like Steve at the Pub might just replace their unskilled people with more skilled people. Even though the skilled people still cost more, it might be the profitable thing to do because the skill difference is more than the wage difference.
There’s still a lot of assumptions in that which I’d want to take issue with, Sam, but I think this whole argument is getting fairly repetitive.
adrian, the reason the US unemployment figures might be higher is that because of low wages a lot of low skilled workers haver to by necessity work two or three jobs. Great for the employer and it keeps the available labour pool high.
Mark, not the robots – but the highly sophisticated inventory management systems, information management systems and specialised contracting we see being deployed everywhere across those four industries you mention – simply because it’s cheaper over the medium term for firms to substitute capital for labour to achieve the same output at lower costs.
I am honestly surprised that folks here are finding this to be rocket science.
Interesting that the western nation that probably has one of the lowest minimum wage rates, the US, has an unemployment rate 4.5% higher than ours.
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No doubt there’s a footnote to the theory which preserves it from troubling encounters with reality.
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Maybe the footnote says something about the US being the centre of the GFC? It might also mention that the US has a similar unemployment rate to a majority of the European economies despite being the centre of the GFC, and those European enconomies don’t fall much from this level even in the good times? Yep, gotta read that small print…..
Michael, US employment rate substantially higher than all European nations except Spain, which must be a special case.
April-June 2009
US 9.5%
UK 7.1%
France 8.8%
Germany 8.3%
Italy 7.4%
Japan 5.2%
Spain 18.7%
Australia 5.8%
Just further to my post above, Spain also had some serious economic problems and a real estate crash. I may stand corrected but I heard on the radio that the current/very recent Spanish unemployment rate is 18%. Now that’s an unhealthy welfare state.
How is the employee to be more productive year by year? They can take on more and more duties, work more and more hours unpaid but in the end there is a limit.
In the meantime their rent is going up, their food is going up but oddly enough not more productive. Less food does not feed them any better.
And this is the beauty of capitalism. A slave owner would have to worry about maintaining living quarters and if food went up in price they had to wear it.
Now, when an employees costs go up and his wages don’t it is up to him to be more competitive. I’m seeing this already with more of my friends in their 30′s and 40′s moving back in with their parents in order to absorb the financial shortfall.
There’s a reason why Packed to the Rafters is so popular.
I’ll give an example here from one firm that I know a fair bit about – and it’s something Steve at the Pub would relate to.
One of the other 3 possums that made up the old Possum Comitatus hivemind in Usenet many moons ago owns a rather swanky hotel at the pricey end of the spectrum. He was finding it incredibly difficult to source qualified labour with the experience and ability he wanted to service the clientele he gets at that particular price point in the market – even at $55-60K, he couldn’t get people to move north to work (and he certainly couldnt find that skillset with the required experience locally). So rather than pay the $75K it would have taken to get people to make the move and work there, he went down the K/L substitution route.
He rebuilt the entire backend of the bar/restaurant side, deploying wi-fi, floor staff with PDAs linking orders from the floor to both the bar and the kitchen, and a real time inventory management system. It cost him an additional $40K odd a year to do this automation (automation, mind you, in the *hospitality industry*), but saved himself over $80K a year on wages from the floor and admin side alone.
If he could have found staff for 60K, he never would have done that. But when the price he had to pay for the labour he needed went beyond 60K a pop for those jobs, it became in his economic interest to deploy capital as a substitute and as a result ended up with a smaller workforce producing the same output for less money.
Substituting capital for labour doesn’t usually mean robots, but it nearly always means technology. Nearly half of the blue collar retrenchments that came out of the 1980′s reforms didn’t actually come from a manufacturing firm packing up and going overseas – it came from firms remaining in Australia, but shedding their workforce as they deployed more capital into their operations at the expense of labour, to achieve the same relative output.
KL substitutions happen in a million different ways.
But Poss, I work for a big company that specialises in helping businesses to do this (or doing it for them), and I can say up front that Labor costs would have to be *very* low to undercut the efficiency gains you see through these programs/systems, or in some cases the extra people hied in India or the Phillippines to help administer said system.
Indeed, in most cases, I would say that the two are not as linked as you would imply – many of those gains are there to be had almost independent of what employees are doing, they are largely systemic inefficiences, and cannot be addressed by hiring more people, etc. in most cases.
I don’t personally think an increase in the min. wage esp. beyond CPI should have been considered in the current economic conditions, although unemployment figures today suggest that peak is going to hit sooner and not be as high, which is great news.
I do think however a very, very modest increase should have been acceptable for not only for wage justice but for it’s stimulus effect, whilst not imposing a too heavy burden on employers in current circumstances.
The thing about the highly technical economic arguments put up by the business sector and fellow travelling economists, can someone please show me where the business sector have ever come to a wages arbitration tribunal/commission etc and offered a wage increase off the bat, in the good times?
That is, no matter the size of the boom and the length of the good times, employer groups will cry poor and can always provide a convincing set of numbers in respect of productivity or overseas competition and so on, as to why any increase will send them to the wall.
Maybe crying wolf over and over again, while making off like bandits and always steadily their own net worth and those of shareholders, other upper management, directors etc., whilst on the other hand having to be forced by the bureaucratic pen to raise minimum wages to meet living costs every single time, no matter how how the sun is shining, does make one more than slightly skeptical about the arguments put forward by pointy heads here. No offence pointy heads btw.
I would have gone with Zoe Ventoura, but the neo-slavery thing works too.
That’s all true PatrickG, now let’s throw it all into a national scale.
Let’s say that only 1 in 10 firms are in a position where some form of K/L substitution can be done which both changes the composition of the skills of their workforce AND results in a smaller workforce to boot.
As the costs of labour increase, the cost/benefit of the deployment of capital starts improving as far as each firm is concerned.
Even though only 1 in 10 firms are in such a position, nationally we’re talking an X hundred or thousand firms employing close to a million people. Simply because we have so many firms across the spectrum, each additional increase in the costs of L will trigger the substitution of K at some number of firms within that 1 in 10. Over a given period, we get a set of empirical, measurable results which then become scholastic fodder for economic journals, commercial researchers and Government institutions – which we can all read to our hearts content.
But they all agree on the measurable reality – K/L substitution exists.
Jo,
I think you’ll find that a great many economists aren’t fellow travelers with business mouthpieces, and believe that the likes of the ACCI, BCA etc are mostly just propagandists and special interest pleaders for their own gravy trains.
It’s just that fights between economists and the the usual suspects don’t tend to happen round these parts.
But oh boy do they happen!
jo 167, a friend of mine who worked for an employer organisation explained to me once why employers always cry poor in wage cases. They know that the wage decision will always be more than ask for and less than what they unions ask, more often than not splitting the difference. So they ask for the lowest possible increase, knowing that the unions will ask for the highest possible increase, who in turn know that the employers will ask for the lowest possible increase ….
Sam @ 170 – I think its the Japanese arbitration system where both sides put in their claims and the tribunal choose one or the other, not a compromise between the two. A good way of getting rid of ambit claims
tssk@159 To say nothing of the millions in jail. They want crime to pay their wages.
Michael Sutcliffe:
So you only want to see minimum wages laws applied to ‘services like pubs and junk food shops’?
Nope, didn’t say that. I think they should be universally applied. Only fair, don’t ya reckon since we don’t have any wage-setting mechanism that takes into account or even attempts a rational estimate of the social value, utility or necessity of a service, product or its ubiquity or possible over-supply. There are many industries and products which a sane society would judge to be socially useless, wasteful, redundant, exploitative , environmentally destructive and unsustainable (often all these at once) and should/would be outlawed or restricted in scope. How many brands of virtually identical common consumer products do we really need??
But in the absence of any mechanism to impede these industries from existing or limiting them in socially necessary ways, then by default a set-up that gives all employment generating industries the benefit of the doubt must also include one where all workers on low wages receive the exact same increases dictated by wage-setting bodies such as this Commission.
You’re sort of right, a free market mechanism will not help those who are unable to acquire skills eg. the mildly mentally impaired, or the single mum obliged to look after two toddlers and baby for the next few years. I’m not suggesting these people shouldn’t be helped through welfare. This doesn’t change our need to preserve a market mechanism that generates wealth and provides opportunities, or to uphold the moral position that capable people should exercise their capabilities to take care of themselves and not put a burden on others.
You gotta laugh, despairingly, at the mindset that wrote this noxious string of sentences. Not only are the “mentally impaired” lumped together with single mums with two toddlers and a baby, implying both groups have a comparable skill set (or lack thereof of any, more likely), but ignored are the actual vast range of skills single mums with three young children do possess which would make them eminently employable in a range of skilled paid jobs if they weren’t being full time child-rearers.
The idea that minimum or low-wage workers are “unskilled” (compared to what?) is a complete furphy as well. Being an effective and valued low-level service or office worker takes a range of organisational, communication, negotiation and increasingly technological skills which are simply taken for granted and under-renumerated at that level. This is simple exploitation. At an executive or managerial level, otoh, the exact same skill sets are requisite, highly regarded and well-renumerated.
tssk:
How is the employee to be more productive year by year?
Simple. If the job involves technology of any sort (which jobs don’t) then workers’ productivity increases as the technology becomes more efficient. Workers should be reimbursed for their increased productivity achieved through their use of technological innovations and improvements.
Only fair, don’t ya reckon since we don’t have any wage-setting mechanism that takes into account or even attempts a rational estimate of the social value, utility or necessity of a service, product or its ubiquity or possible over-supply. There are many industries and products which a sane society would judge to be socially useless, wasteful, redundant, exploitative , environmentally destructive and unsustainable (often all these at once) and should/would be outlawed or restricted in scope. How many brands of virtually identical common consumer products do we really need??
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This is verging on scary. A market provides something because people want to buy it, otherwise that something disappears pretty quickly. Your paragraph says one thing: ‘I don’t like other people’s choices and I want to stop them from making them. I’m a control freak, not content to run my own life and respect the choices of others, I spend more time worrying about what they’re doing wrong than living my own life. And I’m angry at others about this situation and although I may not want to hurt them physically (I hope), I want control because I know better than them’.
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You gotta laugh, despairingly, at the mindset that wrote this noxious string of sentences. Not only are the “mentally impaired” lumped together with single mums with two toddlers and a baby, implying both groups have a comparable skill set (or lack thereof of any, more likely), but ignored are the actual vast range of skills single mums with three young children do possess which would make them eminently employable in a range of skilled paid jobs if they weren’t being full time child-rearers.
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No, Phil, you poor little fellow. A disabled person and a mum who is obliged to care for a number of small children 24/7 have one thing in common – they don’t have the means to provide for themselves under any normal circumstances. They have a justifiable undisputed claim to say I need to live at the expense of others, because there is no reasonable alternative. Any moron could see I was saying this, even one blinkered by irrational left-wing views. Well, nearly any moron, Phil.
There’s a difference between having concern for the unfortunate, weak and disadvantaged, and being a control freak. If we similarly characterised your comments we’d get something like: ‘I don’t give a damn about other people, I should be able to do whatever I want and screw the impact it has on others!’. Which ironically if you got your way would be followed by ‘Wah! I’m getting screwed over by someone, quick get the government involved!’, as seen by much of the business response to the GFC.
This isn’t a claim about the ‘unfortunate, weak and disadvantaged’:
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Phil: there are many industries and products which a sane society would judge to be socially useless, wasteful, redundant, exploitative , environmentally destructive and unsustainable (often all these at once) and should/would be outlawed or restricted in scope.
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This is judging other’s choices and wanting to limit them according to your own preferences. The only possible exception might be ‘exploitive’ but like ‘environmentally destructive and unsustainable’ that’s often code for ‘I want more power over others ’cause I know better’ i.e. I’m more ‘sane’ than you i.e. our current society is insane and should live by my values if it knows what’s good for it.
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I don’t give a damn about other people, I should be able to do whatever I want and screw the impact it has on others!’
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Well, as I’ve detailed above I believe we can identify those that really need help and, unlike Phil, I don’t believe this is being patronising – and I’m happy to pay to provide that help. And so long as I don’t hurt anyone else I should be able to do whatever I want, and so should you. That’s not the same as not giving ‘a damn about other people’, as you left-wingers like to claim.
Mark on the proposal for getting out of the labour price regulatin’ business and into the income regulatin’ buinsess: “It’s…politically infeasible…”
Probably the sh*ttest reason for opposing something.
BBB
Thanks Poss, I’ll take your word for it about the K/L substitution, but the question remains (for me, that is, I presume it’s answerable and been asnwered) as to when and where exactly the substitution occurs, and if so, does it bear any correlation with inflation, for example (wages must be X below inflation) or some other measure?
If it doesn’t, then when can you ever mount a case for wage increase, especially when the cost/benefit ratio of these supply chain improvements etc. continues to rise.
I do apologise if this sounds naive or ignorant, I’m genuinely trying to understand how this works. Thanks,
I’m merely trying to point out, BBB, that you can’t have your cake and eat it too by applauding this decision and then suggesting ameliorative measures which would probably never be implemented. LO recognised that earlier, I think, in his “pox on both your houses” comment.
Given the number of workers whose wage is set by or underpinned by the minimum/award wage there would be a staggering number of people who would need help if it was removed or significantly reduced (either directly or through continual inflation), rather than a relatively small amount of people who fall into the marginal employable category.
That’s my point though. Selling your labour below cost does cause significant harm to others who are trying to sell their labour at a fair cost.
That’s my point though. Selling your labour below cost does cause significant harm to others who are trying to sell their labour at a fair cost.
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I’m still not really sure how you determine fair cost. If you’ve got two people who agree the wage is fair, at least to the extent they’re both voluntarily willing to honour their sides of the mutual agreement despite the fact they could leave it at any time they choose, then I don’t see what’s fair about someone coming in and saying ‘nope, I’m not allowing this to happen’.
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I worked below award wages for nearly 18 months of my life because I needed a job and my prospects were limited (security guard – on construction sites mostly and at a rubbish dump for some of it). I didn’t do any harm to others by taking this job, but it would have made my life very difficult without it. And guess what, it gave me a start to better options. At the very least people like yourself want to deny people like myself this opportunity, when people like myself are willing to make a go of it. BTW, I was constantly approached by the unions reminding me what a scumbag I was for working for a living – they seemed to feel ‘fair’ was me forgoing any chance of building a good life.
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Given the number of workers whose wage is set by or underpinned by the minimum/award wage there would be a staggering number of people who would need help if it was removed or significantly reduced (either directly or through continual inflation).
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Yeah, there would be around 10% of the labour force meeting this description, more in bad economic times. Still better to help them through something like negative income tax and let them participate in the labour market without government distortion at the lower end. From the medium term onwards you would start to reap the benefits and everyones living standard would increase.
Mark, that response would make sense if our conversation were confined merely to the desirability of this one minimum wage decision. Clearly it has gone well beyond that to encompass the whole notion of labour market intervention, which was the context in which your remarkable appeal to political feasibility was made (indeed, you mention it immediately after attacking my policy prescriptions as a whole, not the relatively narrow point of supporting this most recent minimim wage decision), which I would support in any case for the reasons that LO and DD have given repeatedly.
BBB
Well that’s the problem isn’t it. You think that “the market” is the only way of determining the price of something. The market can be considered fair if all players are on a level playing field, however there is a huge imbalance in favour of the employers particularly in the low/unskilled labour market. This means it’s anything but fair.
You caused harm to all those other security guards who now had a much weaker negotiating position with their employers. You also harmed the guard who would have worked for the legal award wage but couldn’t get a job because you undercut them. But then you don’t really care about them, as you’re so focused on ‘fair’ only to you.
I think its much greater than 10% and at least a third of all employees. Meaning you’d have to increase tax rates significantly (20%+) to fund all that support. I can’t see how that will help the economy or job creation.
I’ve got to stick up for MS here in that when you are close to the breadline sometimes you have to do things to survive. Any sin was the employers fault really for exploiting someone desperate for work. At least he didn’t resort to crime or starve stoicly to death.
The overwhelming majority of economists agree that a high minimum wage will cause unemployment. Hundreds of empirical studies confirm this point.
To deny the relationship between minimum wages and unemployment is to engage in denialism, not at all dissimilar to climate change denialism. The reasons for such denialism are emotive and ideological rather than closely reasoned. As a case in point, note how Mark Bahnisch pleads his case without reference to the empirical studies.
Australia already has an unusually high minimum wage. In fact it is well above the OECD average. If we listen to Mark and his ill informed ilk we’ll have more unemployment, in particular youth unemployment, and its unavoidable consequences such as mental health issues, suicide etc.. As my own son suicided while unemployed, I know too well the harm the Bahnisch’s of this world can do.
As my own son suicided while unemployed, I know too well the harm the Bahnisch’s of this world can do.
Naaah, probably it’s his parents fault for calling him a dole-bludging bastard.
That’s low, john x.
And note how blame for the rate of unemployment is elided very quickly from those who sack people and a social and economic system which is complacent about it (some would argue, needs it) to those advocating a higher wage for the low paid. Really repulsive in my view.
Kim @ 188 – if I remember correctly, the bulk of the increase in unemployment during a recession is not from organisations sacking people (although that gets the publicity). Its from organisations not hiring more people (either through growth or replacing people who voluntarily leave). In a recession they will be looking very carefully at the marginal benefit and cost of employing someone. I don’t see how you’d force people to hire more employees even though they may lose money doing so.
Chris, the whole tenor of the arguments made on this thread (and do correct me if I’m wrong) and the claim made by the Fair Pay Commissioner was that the pay cut would enable employers to continue to keep people in work – ie not to sack them.
Ps – I’m not suggesting anyone should be “forced” to hire people.
john x – here are the OECD figures which I pointed out up thread, clearly showed that Australia did not have the highest by far min. wage amongst OECD countries.
http://www.oecd.org/dataoecd/60/26/39005490.pdf
And I’m sorry but I find it very, very hard to believe that any grieving parent would come onto a public forum and blame their son’s suicide on the blog’s host’s views on national wage setting.
And if this is sadly, really the case, then this very inappropriate behaviour says way too much about the person posting, much more than any causal link between youth suicide and employment status, a link which is not properly established due to myriad of other complex issues involved – family dynamics, peer group pressures, sexual identity, organic mental health issues, drugs/alcohol and so on.
Kim @ 190 – well I think its a bit more nuanced than that. They talk about higher unemployment among minimum wage workers, but that doesn’t mean thats caused only or even primarily by employers sacking. It’ll happen naturally if the minimum wage employers just stop hiring or replacing workers who leave voluntarily (eg get a better job, forced to move too far away etc). I’d guess that worker turnover in minimum wage jobs is pretty high.
I’d like some clarification of the inconsistency between:
(a) the claim made by LO and BBB and Possum that there is some sort of invariant relationship between the level of the minimum wage and the rate of employment;
(b) the acceptance by LO of the fact that the Commission’s own modelling showed only a very small impact of its previous generous wage rise and the rate of employment.
Note also that economic modelling based on particular premises is not the same thing as an empirical study.
Anyone who’s been paying close attention to the logic of the claims being made would note that there’s a very large portion of assertion, and a lot of unacknowledged ground shifting.
Incidentally, for some up to date data on the impact of the decision (that is, the number of workers dependent on awards for all or most of their pay), refer to the ACTU post-budget submission to the FPC:
http://www.fairpay.gov.au/fairpay/WageReviews/Submissions/2009/Employee/Employee.htm
(b) the acceptance by LO of the fact that the Commission’s own modelling showed only a very small impact of its previous generous wage rise and the rate of employment.
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The report (linked at Matt C’s post at #1) analyses why this is the case. I wouldn’t call 8% over three years ‘generous’, it’s just an unignorable increase, and I wouldn’t call a 0.05% increase in unemployment over an 11+ million labour force ‘very small’. That’s 5,600 people who have lost their jobs and unable to find work, now living at the expense of the state, in the middle of the commodity boom when labour markets were tight right across the spectrum. The relationship is very clear, and I’m sure it would be even clearer without the commodity boom.
Check out the average time people were unemployed, Michael, before you jump back on the emotive bandwagon with claims such as “now living at the expense of the state”.
So you’d concede that other factors are intervening variables? That’s implicit in what you’ve just written.
What I’d like to know is on what basis the minimum wage is the independent variable. I’m unclear also as to whether the dependent variable has been accurately specified.
In the real world, decisions about whether or not to employ people, or whether to lay people off, are made for a range of reasons – and the prevailing rate of wages is only (potentially) one of these.
This purported relationship, as has been noted, can’t be shown to exist in cross-national comparison.
If it is a cultural factor in Australia – as it may well be – that many employers make employment decisions purely on the basis of labour cost, then I think that’s a problem, not some cause for triumphalist celebration about economic models and theories.
Well that’s the problem isn’t it. You think that “the market” is the only way of determining the price of something. The market can be considered fair if all players are on a level playing field, however there is a huge imbalance in favour of the employers particularly in the low/unskilled labour market. This means it’s anything but fair
Well, yeah, I’d say what people are willing to pay for something generally determines it’s price. If no one is forced to buy or pay other than on their own terms then the playing field is level. If I agree to work at a certain price that’s because I feel I’m better off by doing that – if I don’t feel I’m better off you can be sure I won’t accept the terms of the offer. An employer who offers $2/hour in Australia won’t get any takers (at least not with people who are here legally) and he can either do the work himself, go broke or raise his offer.
You caused harm to all those other security guards who now had a much weaker negotiating position with their employers. You also harmed the guard who would have worked for the legal award wage but couldn’t get a job because you undercut them. But then you don’t really care about them, as you’re so focused on ‘fair’ only to you.
Wrong again. My work was the bottom of the pile. If you paid people who had got other jobs my rate of pay they’d leave and find a better offer. If you forced the employer to put the wages up he simply wouldn’t get a contract to fill that position and the job would disappear. People weren’t willing to pay more for that service, or more realistically, they would have sought alternatives and taken a hit in the level of protection offered to their property. You can legislate what you like, but the guy spending his money isn’t going to go ‘oh well, the government and unions have decreed I must pay more so I just will, and I won’t even bother finding a cheaper alternative solution’
I think its much greater than 10% and at least a third of all employees.
I’ve never seen an ‘award dependent’ figure this high. The report linked above puts it at 12-14%. Seems reasonable to me.
that’s low, zarquon
Check out the average time people were unemployed, Michael, before you jump back on the emotive bandwagon with claims such as “now living at the expense of the state”.
Sure, so more people were in-between jobs more often. Are you saying the amount of welfare collected by these 5,600 people was negligible?
In the real world, decisions about whether or not to employ people, or whether to lay people off, are made for a range of reasons – and the prevailing rate of wages is only (potentially) one of these.
This purported relationship, as has been noted, can’t be shown to exist in cross-national comparison.
If it is a cultural factor in Australia – as it may well be – that many employers make employment decisions purely on the basis of labour cost, then I think that’s a problem, not some cause for triumphalist celebration about economic models and theories
Yes, I agree there are a range of factors. I don’t get your point. Do you deny that a relationship exists between what a business needs to pay workers and how many they employ? What can’t be shown to exist in a cross-national comparison?
Let’s play with these numbers…
We can either do
a) employ 0.05% more people at minimum wage
which is 0.05%/14% = 0.35% more money to minimum wage workers, or the average amount each worker will be better off.
Or
b) take an 8% increase for each worker which is 8% more money to minimum wage workers, and apply a 0.35% tax increase to just minimum wage workers to pay for the welfare (at minimum wage no less) of the 0.05% who get left out. This leaves them each about 7.65% better off.
Sorry, which option is better for minimum wage workers?
As far as I’m concerned people like Michael Suttcliffe fail to understand te difference between assertion and evidence, rhetoric and facts.
I have asked twice for evidence demonstrating a clear link between a small rise in the minimum wage and unemplyoment. I linked to a detailed study from Princeton University that suggested the opposite was the case, and asked for comment.
Only Possum managed to reply directly. The rest of you prefer your idelogically based assertions masquerading as fact, combined with cheap ‘lefty’ insults and other tired debating techniques.
If you’re going to convince anyone other than your fellow travellers you should really try harder.
I think some people here need to apologise to John X. Disgusting stuff.
Also getting back to being paid less than min wage….isn’t one of the conditions of the dole accepting any job no matter what? Still, I’ve known workers get screwed in hospitality for only getting apid on paper the award. In truth…the employer would constantly ‘forget’ to pay said workers. My brother got in an awful situation where after not getting paid for two months he couldn’t get the dole because he had quit. And the tax department chased him for the money his employer didn’t pay them for the wages he never got.
Michael Sutcliffe – A market provides something because people want to buy it, otherwise that something disappears pretty quickly.
Umm, how then do you explain the absence of a market for many things I would be prepared to buy for love or money. From fresh air in the cross-city tunnel to that exact shade & texture of discontinued lipstick I simply must have or I shall die!
And speaking of crime you do realise don’t you that crime is first and foremost a market, a thriving and even structured one ruled by supply and demand? There’s a hidden synergy between your old job of security guard and the unmet needs of people who want or need the material things a security guard is paid to protect, to even violently prevent them from exercising their rights to take what they need that they market simply cannot provide them at a price they think fair or are willing to pay.
What’ve you got to say about that?
tssk, I’m not buying into john x’s story and it’s also entirely inappropriate to use a family tragedy to score points on a blog thread about the national economic consequences of raising the min. wage.
If you read carefully however, you’ll note that point was actually a slur against ‘Mark and his ilk’ (how many times I have read that particular phrase….) and not to make a reasonable comment about the very personal consequences of youth unemployment on john x and his family.
Unfortunately, over a long period, I’ve read the most despicable and dishonest slurs directed at Mark and Kim in particular, usually by anon. trolls or sock-puppets by one or two anon. posters in particular. So much so, that both Mark and Kim have both at times, wondered why the hell they bother with LP and blogging at all.
Well said, jo. I was going to make a similar comment myself.
Adrian 201
go the google scholar and search “minimum wage”. You’ll get 151000 articles.
I’ve made the point several times on this thread, Michael, that a large number of employees who the ABS classifies as being on “unregistered individual arrangements” have their pay effectively determined by awards, and that awards underpin enterprise bargaining in many workplaces. Please take what is said into account, even if it doesn’t support what you’d like to be the case. Note also that you’re contradicting your own predictions of doom if you accept that only “award dependent” employees are impacted by minimum pay rates increases.
@204 –
And John X doesn’t owe me an apology for implying that my support for a minimum wage rise is akin to condemning people to suicide? I doubt very much that the comment was made in good faith. Unless the gentleman was bombarding Ian Harper with similar accusations last year when the minimum wage was increased.
Jo @ 206 – thanks for the comment.
“isn’t one of the conditions of the dole accepting any job no matter what?”
Not quite. You’re meant to actively seek “suitable work”, and there is a legislative definition of “suitable work” – or, rather, of “unsuitiable work”. No one is required to accept work at below award rates, but they are required to accept part-time work or, since recently, appropriate ‘self employment’ opportunities.
By the by, the ABS figures cited in the ACTU submission as to the number of directly award reliant workers do seem out of whack with the figures given in the CIE report which seemed to underpin the FPC’s decision. I’ve only skim read each, so I’m happy to have any apparent discrepancy explained to me.
(But I endorse Mark’s point [Or was it originally my point?]: there are workers who are directly award reliant and there are workers who are indirectly award reliant.
All this hand-waving about ‘small’ rises in minimum/award wages having little effect basically says to the inevitable victims of all this: ‘F*ck you. Collectively, your stat ain’t big enough for me to reconsider my ideology’. I mean, it’s pretty much getting to the stage where the very existence of marginal workers is being denied.
John X makes the simple point that Mark’s policy prescriptions will cause unemployment and that, in his very personal experience, unemployment can have absolutely massive consequences for affected individuals. Hardly controversial. Mark wants a world where he can support any old policy and never be held to account. All care and no responsibility. Well fine, but then Mark really does forfeit any right to insist that others consider the real-world impact of their political positions. The dynamics of the climate change debate spring immediately to mind, as they did into John X’s. And it’s just so typical for those who claim a monopoly on regard for the less fortunate to react violently when their sense of moral superiority is threatened by some simple truths.
Finally, it astonishing that Mark is happy for Zarquon’s vile comment to remain there.
“…it’s also entirely inappropriate to use a family tragedy to score points”
Most revealing comment on this entire thread. jo, not everyone thinks like you do.
BBB
JillS,
Discontinued lipsticks are the bane of my life and don’t get me started on the travesty of new generation foundations!
Ah, the “I + 1 = 2″ man. Michael, firstly I must point out to you this is not always true. Why is it that libertarians interested in maths and economics fail to understand that both these… ahem… disciplines are very limited kinds of knowledge. Mathematical formulas are not absolute and eternal truths everywhere and at all times. In the real world there is no equivalence of causes and effects, and effects may even precede causes. This means e.g. that unemployment may rise for reasons other than an increase in wages. Geddit?
Now on to your obsession with linking single mothers with the mentally impaired, and now the disabled, and claiming both “need to live at the expense of others”.
What a strange view of the world and people you must have. Assuming as you imply that all these people require welfare payments to survive, are you seriously suggesting that such people are in some way bludging off those in the paid workforce and that their role in society is somehow less valuable or worthy or deserving of respect and acceptance, let alone of caritas? Is this what you are saying?
I’m struggling to understand how their receipt of social security support means they are “living at the expense” of you or me. Please elaborate.
BBB,
Did you read my comment where I illustrated that the employment loss was small relative to the gains from higher wages.
What about the other “marginal” workers, the ones who are marginal on paying their rent or home loans, marginal on food or medical expenses, marginal on travel expenses, etc. That ‘small’ increase will prevent them from becoming victims of another kind: being forced out of their home (and possible out of range of their current job), not being able to work because of under-medicated illness, or just not being able to afford to get to work. Businesses aren’t the only cases where ‘marginal’ becomes an issue.
I take it you’re going to take responsibility for all those people who suicide as a result of not being able to pay the bills, even though they’re working their ass off?
but BBB
but BBB
Sorry about that, but BBB by the same token you’re in denial that anyone on the minimum wage cannot already by a marginal worker. That’s pretty naive, in my opinion, and does little but confirm how out of touch you are with some of the working realities out there currently – as opposed to hypotheticals.
And John X’s comment. Really, now. It was just bad taste, and almost certainly fictional to boot. If you stopped your outrage for a second, some rational analysis would really shoot it down.
Well the Buddha certainly got that one wrong, then. Who’ll be brave enough to tell the millions of his adherents that the central tenet of their belief system is false?
I think it’s up to you, desipis, since you have brought us this enlightenment. I know that they’ll be disappointed, but no more so than all the world’s mathematicians who have been labouring, up until this moment, under the delusion that 1+1 does in fact equal 2.
What further enlightenment do you have for us? That the Catholic Church was right all along about Galileo and we should have stuck with the Ptolemaic system to understand the movements in the heavens, perhaps?
Sorry desipis. I see that it was Phil who brought us enlightenment.
But while I’m about it I may as well help Phil with one thing that’s a source of bafflement:
It’s called taxes, Phil. That’s what pays for social security payments. We pay taxes to the government. The government gives that money, or part of it, to those on social security support. Sort of like 1+1 = 2 or cause preceding effect.
It’s called taxes, Phil. That’s what pays for social security payments.
Mothering creates the basis for the production of new workers who can pay taxes, GregM. No new babies, no mothers, no more taxes. Which comes first and is most important do y’think?
And who or what is really “living at the expense” of whom?
Do you include in “social security payments” corporate welfare, bank bailouts and subsidies to incompetent car manufacturers and the like?
There are at least three conditions of mechanical causality none of which necessarily applies to human beings and their societies. These are that the same causes must have the same effects, there must be an equivalence of causes and effects and causes must precede their effects. All of these are easily illustrated. Put your thinking cap on now and try to see this. Think, GregM!
Hint: re the third condition, the fear or anticipation that something may or may not happen may cause it to happen.
Still struggling with logic are we Phil?
Yes mothers produce babies who may become workers who then may pay taxes. But neither becoming a worker nor paying taxes is a necessary consequence of being born.
However no taxes then no social security payments. It is pretty much that simple.
No. Your question implies them as being forms of waste, and maybe they are.
However I don’t see social security payments as a form of waste. I see them as necessary for the proper functioning of our society. It’s just that I can see the glaringly obvious, which is apparently quite beyond your comprehension, which is that taxes, incuding mine, pay for them.
You’ll have to bone up a bit on Buddhism. Its concept of cause and effect is a lot more complex than your simplistic view of mechanical causality.
Keep struggling with it and you might get there. You may even come to recognise that eternal and invariable truth – that 1+1 does indeed equal 2.
Gah, apologies. It does seem I was taken in by the most obvious of trolling.
Let me try make ammends by throwing in another thought. If the job market is really a market won’t people offering the labour at below award create conditions where others will have to do the same in order to compete?
Yes mothers produce babies who may become workers who then may pay taxes.
Great, GregM. You agree with me. Mothering comes first and is the most important thing and from that comes the possibility of workers who pay taxes.
My very point.
(BTW, you are the one who seems to be hog-tied by mechanistic formal logic. Not a pretty sight or an enviable position to be in, GregM.)
Now saying that taxes pay for social security, and yes I agree they do, in no way implies a moral judgement about social security in the way Michael Sutcliffe made a negative moral judgement about social security for single mothers and mentally ill or disabled people by explicitly stating that these people were “living at the expense of others”. I queried and disagreed with that and still do for reasons separate from acknowledging that taxes pay for social security.
I repeat: crucial to understanding that wages are not necessarily tied to employment levels is that 1+1 does not always equal 2 and that effects can precede causes.
Can you not think of any real life circumstances in which these propositions perhaps facts are true?
I up the ante now and state categorically that not only does 1+1 not always equal 2, but that water is probably not always H20 and nor is it always true that E=mc2.
Do you have the slightest understanding of what I am saying and why what I’m saying is true?
As a minimum wage employee, I would just like to say that when you add up the effects of various concessions and the extra cost of living that working entails… (I need to eat a lot more food doing manual labour then I do when I was unemployed) that it is barely worth the candle working.
Work it out- when you work, the price of medicines, bus tickets, etc goes up, your groceries goes up, you spend more on petrol, and it really is more expensive working.
So we really could have done with that pay rise. I know that there’s people out there who will argue that employers can’t afford a $20 a week rise, but if their business is so marginal that they can’t afford that, then they are going to go bust soon enough anyway.
And then those employers can also have a crash course in the joys of unemployment.
I am not at all sure that you have the slightest understanding of what you are saying, Phil. But go ahead and demonstrate the proof of each of your assertions.
As of course would all of their ex-employees. Do you think that is also a good thing?
“Gah, apologies. It does seem I was taken in by the most obvious of trolling.”
At least you have the good grace to apologise tssk, unlike others.
GregM, merely asking me for proof of my assertions shows the philosophical dead-end in which you mentally reside.
To summarise and all this is true of the “hard” sciences as much as it is of history or the social sciences:
There is, there can be, no essential separation of the knower from the known.
There is no such thing as scientific objectivity.
All human knowledge is limited.
Knowledge is neither objective nor subjective.
Every human being sees the world in their own way.
We choose not only what and how we think but what and how we see. Then there are the group loyalties and beliefs often defined by being counterposed or varying in important ways to all others.
Today e.g. we know that the behavior of small particles e.g. electrons are unpredictable (and are not facts, we cannot see them) and our observation of them interrupts their functioning.
All mathematical measurements are indefinite, incomplete, and variable depending on timing and context.
Every number, every material thing is endlessly divisible.
Science and historical knowledge are approximate kinds of knowledge because of the limitations of the human mind.
All theories, scientific, historical, political and sociological are limited and relative.
This by definition includes the theory that unemployment is always the result of wage increases.
And finally, the coup de grâce, even a cursory study of history shows this ideological assertion is mostly not the case.
Thanks for that, Phil. You’ve certainly confirmed my fear that you don’t have the slightest clue of what you are talking about.
You’ve just peddled a pastiche of assertions and have absolved yourself of any need to put foward any evidence or argument in support of them.
Still, by your logic, or what passes for it, everything that Michael Sutcliffe has written above is as true as anything you say and, on your say-so, we can all confidently conclude that unemployment is always the result of wage increases, that proposition being as unfalsifiable as its obverse.
i am always H2O. don’t be a drip.
I object to water’s racist assertion that that
“I am always H2O”
H3O rulez
Again getting back to the point about employers not being able to afford pay rises. If you charge more for the goods and services you produce and yet find a way to keep your labour costs static, congratulations. In the short term you’ve found a way to get profit from your labour.
In the long term though such actions can be very addictive and no business that feeds on it’s own employees is going to last too long one would hope. Also there is a power inequetity that we don’t like to talk about. If my pay stays static or drops I can’t then renegotiate with my providers of food and rent. Not without much laughter.
Tritium
you seem confused. The 2 H’s in my H2O can be protonic H or deuterium or indeed your good self.
So I can have two protons,
or a proton and a deuteron,
or two deuterons,
or a proton and a tritium,
or two tritiums,
or a deuteron and a tritium.
Regardless of all that, I’m still H2O. And I’m hardly racist!
Ask old carbon 14: she can be in CO2 but it’s still CO2.
Ask old carbon 14: she can be in CO2 but it’s still CO2.
Isotope so too.
Sorry I couldn’t keep this argument flowing – I’ve been away since Friday evening and this response is too long to post on my iPhone!
desipis: We can either do
a) employ 0.05% more people at minimum wage
which is 0.05%/14% = 0.35% more money to minimum wage workers, or the average amount each worker will be better off.
Or
b) take an 8% increase for each worker which is 8% more money to minimum wage workers, and apply a 0.35% tax increase to just minimum wage workers to pay for the welfare (at minimum wage no less) of the 0.05% who get left out. This leaves them each about 7.65% better off.
Sorry, which option is better for minimum wage workers?
This is a good illustration of the left-wing belief that we an simply legislate an alternative reality. Option b is simply the same as raising the minimum wage 7.65% and putting the resultant unemployed on welfare. Just because you’ve claimed to raise the minimum wage 8% and only levied a tax on minimum wage workers doesn’t change anything. You left-wingers are playing a zero-sum game – there’s no more productivity or efficiency, and hence no overall higher quality of life, to be had from your actions. There is still an extra 5,600 people that need to be kept through the labour of others, capable but sitting at home, losing skills let alone learning new ones, losing contacts with employers and networks, and having their self-esteem, relationships and personal life fall through the floor. And furthermore the price of hiring workers in industry has gone up by 8%. What you are hoping for is that, all other things beings equal, the companies will make less profits for their shareholders and the salaried executives will accept less money for their services, and the reduction of capital that industry has to invest will be made up from somewhere (…maybe Santa Claus?), which is why this is exactly the same as levying a tax on the non-minimum wage earners and businesses. But we know what really happens – some shareholders and private company owners will decide that the return on their investment is no longer worth it and take their funds elsewhere, which means less companies, less employment and less productivity. Some executives will decide it’s no longer worth it and go elsewhere and end up replaced by less capable executives who will not be able to run the company as efficiently, which means less employment and less productivity. And companies will have less capital to invest, which means less employment and less productivity. And do you know what we need to raise the living standards of the poor – employment and productivity i.e. exactly what you are destroying. Furthermore, if companies don’t take this route, what are they going to do to compensate for the higher cost of labour? Put prices up of course, eating into that minimum wage rise you’ve legislated.
My point is that your example is equivalent to raising the minimum wage 7.65% and taxing non-minimum wage earners and companies to provide welfare for the layoffs. There’s nothing particularly exciting about it. Furthermore, you provide your example in isolation, but workers don’t live in isolation, they participate in a wider market for their employment and these actions will have the same negative follow on effects in this market as my equivalent example.
———————–
As for JillS’s comment (#203) that the markets I’m talking about are morally the same as the market for violence in an anarchic society, and that as a security guard I was actually doing the filthy work of the evil rich, protecting their property from the desperately hungry worker hordes (despite the fact that the markets I’m describing consist of free agents acting voluntarily by definition, and that as a security guard I actually worked at a rubbish dump for some of the time), and Phil’s comment (#211) that human beings can’t actually know anything with any level of certainty and therefore can’t make rational decisions to increase the efficiency of an economy (despite that fact that I’m sure Phil makes hundreds of certain decisions every day based on knowledge he holds, and human beings have felt they could gather knowledge with sufficient absolute authority to rise from the swamp and reach the moon), I’ll leave those for another day. For the sake of getting somewhere lets tackle minimum wages before doing metaphysics.
As for Adrian claiming I’m not providing enough evidence, I’ll ask again – do you agree with the methodology in the report linked in the first post in this thread?
In today’s Adelaide Advertiser:
“Teenage girls working for a clothing retailer have been reimbursed $10,000 because an investigation found they were being underpaid.”
http://www.news.com.au/adelaidenow/story/0,22606,25770458-5006301,00.html
Hi HRN
there’s an avenue in Victoria for underpaid casuals to get assistance from a Govt Dept in recovering unpaid wages (e.g. if they were paid at a lower rate than proper). My daughter used it ten years ago. Had to produce payslips to substantiate her case. Then she contacted other casuals at that coffee shop too. Final step (to avoid a court process): employer had to phone each complaining casual and “make an offer”. No prosecution.
My conclusion? Never discard a payslip. Persist with a complaint, don’t be deterred by slowness.
[A year later we happened to bump into a new casual who was now working at the same shop. When she figured out who my daughter was, she said "Oh, you're a legend!"] The result of vigilance had evidently helped several young women.
~ Proud Dad
Michael,
You’re making a couple of big assumptions there.
Firstly you’re hoping exactly the same thing with suggestions that we put higher taxes companies and high paid employees to pay for the welfare of the unemployed and minimum wage workers. From a macroeconomic perspective, they will both produce a slight discouragement of investment (and hence lower overall wealth) but push a much higher portion of the overall wealth towards those at the bottom. However there’s a critical difference which brings me to your next big assumption.
You assume that all employment is equal. While both higher taxes and a higher minimum wage will reduce the overall desire to invest capital, it’s important to note that they will discourage investment in different types of companies. The higher taxes option will discourage investment in companies that employ skilled staff, while raising the minimum wage will discourage companies that employ unskilled workers. Essentially you’re suggesting that raising taxes and putting 2 scientists/engineers/accountants out of work is a better option than raising minimum wage and putting 3 fast-food/retail/sweatshop workers out of work. It’s not just a matter of how many people are employed but how productive they are as employees.
We’re all aware of inflation, however it will take time for it to take full effect through increased prices and raised wages for other employees. Taking advantage of this lag by having regular revisions we can enable a long term increase in real income for those on the minimum wage.
Water :
You’re right ! Apologies for my snide assertions.
(slinks off looking for some compatible O2, and an ocean to hide in.)
Just as an aside, since most free market people arn’t fond of government intervention where was the protests against work for the dole and it’s distortion of the labour market?
Tritium : all is forgiven. Call me “wet” or “sloppy” but I’m very tolerant. I’m not easily insulted: as it happens, I DID come down in the last shower.
I’m also an absolute bastard when I’ve had too much to drink – OK, time to go and turn something rusty! Life’s a ball when you’re a dominant and ubiquitous molecule.
H2O, you’re being a bit wet and full of yourself, aren’t you? Look, I love you to bits but according to human “scientists” you’re inorganic and lifeless, even though water accounts for around 60 percent of our body weight, and we do acknowledge that the scientific distinctions between the categories of organic and inorganic matter are by no means watertight.
Complicated, ain’t it/we/you.
This caricature of all people not in the paid workforce is derisory and sad. I’d argue that most people’s experience of the workplace involves a net deskilling, that their jobs do not draw on or even require them to use anything like their full capabilities, knowledge and skills acquired outside the paid workforce through many different forms of voluntary or otherwise unpaid work, life experience, the accretion of wisdom we all hopefully gain to one degree or another.
Given this and given the pitiful and exploitative wage rates existing at the bottom end of the scale, which this decision will exacerbate, it’s probable more people will choose to not work, or work less, move back home, claim disability, have another baby. This in itself is further reason why high or increasing wage rates per se do not cause unemployment, and that unemployment can grow because wages, nominal and real, have in fact fallen.
And being out of the institutionalised paid workforce and the appalling treadmill it represents to so many often enables people to have far more meaningful and sustained relationships with family, friends and community than that of voluntary wage slaves.
Just sayin’.
ooooh Phil, don’t freeze me out!
desipis: ‘Essentially you’re suggesting that raising taxes and putting 2 scientists/engineers/accountants out of work is a better option than raising minimum wage and putting 3 fast-food/retail/sweatshop workers out of work. It’s not just a matter of how many people are employed but how productive they are as employees.
I agree with most of what you’ve said, except for statement above (and I very much doubt the ratio would be 2 vs 3 but whatever). Firstly, once you’ve decided that you’re going to provide welfare to the minimum wage earners it is always going to be the educated/productive/efficient workers that provide it – 70% of the income tax in this country is paid by 10% of workers. It doesn’t matter if you tax these workers and deliver it straight to the welfare system, or increase the minimum wage which means there is less money to go to salaries and company profits. The result at the top end is the same. The result at the bottom end is substantially different – the tax transfer will increase employment and productivity at the bottom end if it’s done correctly (which it currently isn’t), while the increase in minimum wage will decrease employment and productivity at the bottom end.
There is another factor I think gets overlooked. The tax transfer system makes the most of the human spirit. If it’s done correctly we can provide a vibrant market that lets all people including those at the bottom end exploit their own talents to their own benefit, change employers easily until they find the best one, and receive the pleasure of productively improving their own quality of life. When we tell people to go home or join the unemployment queue we limit their opportunities as there are only a few courses of action open to them, and we effectively tell them they’re not equipped to make their own way. Unlike Phil at #240 above I believe that there’s plenty of people at the bottom end who enjoy working and relish being given opportunity, and won’t remain at the bottom end for much of their lives if given this opportunity.
Michael.
Why not have the wealthy/investors cover a share of it as well? The labour at the top end of the market can be just as mobile as the capital.
Bollocks. The Engineering/Accounting/Research firm selling their services won’t be affected much at all by a raise in the minimum wage. If taxes are increased then they’ll have to raise pay levels to attract new workers, which in turn will decrease demand for this type of work. Vice-versa for the minimum wage fast-food/sweatshop business.
Taxing higher skilled workers does nothing for the productivity or employment for those at the bottom. It increases the wealth of those at the bottom at the expense of the skilled workers.
I’m not disagreeing, however the affect will be slight compared to the increase their wealth at the expense of the investors. One of your big assumptions, that I missed in my last comment, is that prices are driven by labour cost. In the case of low skilled employees this is far from guaranteed to be the case, as they lack the negotiating power to get paid what they are worth.
There would be lots of exploiting going on, but it wouldn’t be to the workers benefit.
Once again you’re assuming that the bottom end workers will have the skills and resources to act as rational market participants.
Hang on, if we’re using taxes to provide welfare for people on under current minimum wage pay there will be an effective tax rate of 100% meaning they won’t see any improvement in their quality of life. Unless you’re talking about lowering their quality of life, or paying for more welfare to those on or above minimum wage than they already get to ensure there’s an incentive to work.
If all they’re after is opportunity then I’m sure there’s plenty of charity work they could engage in to prove themselves to potential employers.
Bollocks. The Engineering/Accounting/Research firm selling their services won’t be affected much at all by a raise in the minimum wage.
Except they’ll have less clients who do employ minimum wage workers that require their engineering/accounting/research services, and therefore they’ll require engineers/accountants/researchers. Or even if they don’t, they’ll have less clients who have clients who employ minimum wage workers…….and therefore really they’ll have less clients and require less employees themselves.
Taxing higher skilled workers does nothing for the productivity or employment for those at the bottom. It increases the wealth of those at the bottom at the expense of the skilled workers.
Well, if the tax is distributed correctly to the lower skilled workers it will allow them to maintain their lifestyle while participating in the labour market at a feasible rate set by the market rather than an unfeasible rate set by the government at the behest of unions. Thereby, increasing their productivity.
I’m not disagreeing, however the affect will be slight compared to the increase their wealth at the expense of the investors.
With a small increase in the minimum wage this is true, but that still doesn’t make it the best thing to do. It also has limited capacity to help i.e. if you try to extend the program by further increasing the minimum wage you will do substantially more damage, get higher unemployment and hurt the productive side of our society that provides the quality of life for everyone.
One of your big assumptions, that I missed in my last comment, is that prices are driven by labour cost. In the case of low skilled employees this is far from guaranteed to be the case, as they lack the negotiating power to get paid what they are worth.
True. Labour costs are just one factor. That’s why I said ‘eat into’ the wage rise you’ve legislated rather than eliminate it.
Once again you’re assuming that the bottom end workers will have the skills and resources to act as rational market participant
Not really. I’m saying that if you have a vibrant labour market where employers feel free to hire and fire, and minimum wage employees aren’t living on the edge of their seat because there is an inbuilt safety net that will cover them for periods out of work, then you’d find minimum wage employees would shuffle around looking for the ‘best fit’ and good opportunities. And employers would be more inclined to give them a go. I’d also say that flexible labour market provides more security overall because if you’re laid off somewhere, or your employer goes under, it’s easier to find another employer.
Hang on, if we’re using taxes to provide welfare for people on under current minimum wage pay there will be an effective tax rate of 100% meaning they won’t see any improvement in their quality of life. Unless you’re talking about lowering their quality of life, or paying for more welfare to those on or above minimum wage than they already get to ensure there’s an incentive to work.
Correct. This is why I said above ‘the tax transfer will increase employment and productivity at the bottom end if it’s done correctly (which it currently isn’t). Perhaps a negative income tax scheme like this. We need to get over eliminating welfare entirely when people start to work, and it’s in our interests to get it to them quicker if they fall out of work, assuming that we’ve used this opportunity to free up the labour market.
If all they’re after is opportunity then I’m sure there’s plenty of charity work they could engage in to prove themselves to potential employers.
I’m pretty sure participating in the labour market, learning how to negotiate pay rates with employers, forming networks and picking up new skills in industry will do more to improve their quality of life (and the quality of life of other people looking for opportunities) than doing volunteer work. Not that volunteer work is bad, mind you. But paid employment is better…..for everyone.
I’ll just tidy up my first two points:
Bollocks. The Engineering/Accounting/Research firm selling their services won’t be affected much at all by a raise in the minimum wage.
Except they’ll have less clients who do employ minimum wage workers that require their engineering/accounting/research services, and therefore they’ll require less engineers/accountants/researchers. Or even if they don’t, they’ll have less clients who have clients who employ minimum wage workers…….and therefore really they’ll have less clients and require less employees themselves.
Taxing higher skilled workers does nothing for the productivity or employment for those at the bottom. It increases the wealth of those at the bottom at the expense of the skilled workers.
Well, if the tax is distributed correctly to the lower skilled workers it will allow them to maintain their lifestyle while participating in the labour market at a feasible rate set by the market rather than not participating in the labour market because of an unfeasible rate set by the government at the behest of unions. Thereby increasing their productivity because they can actually do something productive rather than be unemployed or under-employed. But it would also go beyond this. If they are cheaper to employ then it might be more viable to send them on a training course, or if you use the tax transfer system to free up the labour market you can afford to give them trial run etc.
Michael Sutcliffe employs one employer organisation cliché and shibboleth after another to paint a propagandistic picture that in no way reflects the real life of most workers, only the interests of the exploiters of workers and their dependents, i.e. most of society.
Contrary to his Machiavellian but easily disprovable claim, most workers are neither in a position to nor capable of negotiating their working conditions including wages with potential employers. It simply doesn’t happen, regardless of their position in the workforce.
Wages aren’t set by “the market” (not another libertarian ex-Catholic perchance, Michael?) they’re set by bureaucracies and employers large and small. That’s the truth of the unequal power relationship between workers and employers. Anything else is capitalist class spin.
Fetishising the networks that he claims people build by being in the workforce, he ignores the fact that the most durable, strongest and important networks many people form in their lives lie outside the workforce.
And not content with denigrating single mothers, disabled people and the mentally ill as unproductive parasites who “live at the expense of others”, our increasingly unattractive libertarian exemplar now unfavourably compares volunteering to paid work and assumes that people always chooses one or the other for self-interested reasons.
Evidently foreign to his worldview is that enlightened self-interest often coexists symbiotically with good for others. You see glimpses of it all the time in the work of volunteers who are often happiest doing this work than any other because they feel better about themselves for thinking of others. Better in a social sense, more integrated into a social network with its shared sense of being social advocates seeking to shape a society they are happy to be part of because it is caring.
But all this is a foreign country to our exploitative, money-grubbing, libertarian-employer advocate.
ooooh Phil, don’t freeze me out!
Nah, I’ll just watch you evaporate. There’s plenty more where you came from.
Michael,
Geez, now you’re stretching, while still assuming that raising minimum wage will significantly reducing demand for products and services.
You can say the same thing about the tax and transfer system; put the tax rate up too high and the whole system starts to fall apart. No one is talking about dramatic raises in the minimum wage, for the most part we’re just arguing for it to keep pace with the cost of living, i.e no real change.
Or not a factor at all. Quite often the price will be what the market can bare, which will be completely independent of the costs.
Yeah, you try living on $9,000 a year. Reduce poverty my ass. Like I said, your schemes will significantly reduce living standards for those at the bottom.
You seem to think that minimum wage employees have the same capabilities as professionals to develop themselves and their career. That is far from the case.
You can say the same thing about the tax and transfer system; put the tax rate up too high and the whole system starts to fall apart.
Yes. However the tax transfer system harnesses the productivity of the whole workforce where your system doesn’t. Hence it can do more before it starts to fall apart. But beyond this fact it also offers the best outcomes form minimum wage workers.
Or not a factor at all.
Labour costs might at some times be a minor factor, but they are always a factor. To disregard this is to ingore reality like Phil. If the product can command a higher price in the market you can bet that workers will start demanding a higher price and competitors will start undercutting that price.
Yeah, you try living on $9,000 a year. Reduce poverty my ass. Like I said, your schemes will significantly reduce living standards for those at the bottom.
Well, I have done it. I then became a security guard on below minimum wages and earned $24,000 the next year and significantly improved my position, but that ‘s another mattter. You don’t have to use those numbers in the example. I’m just suggesting a negative income tax scheme as one solution that is superior to minimum wages and the current welfare system.
You seem to think that minimum wage employees have the same capabilities as professionals to develop themselves and their career. That is far from the case.
And your solution is to ensure that minimum wage workers never have a chance to acquire these skills or get themselves to a position where they can fully engage the labour market to their advantage. My solution puts them in a position where they are provided with incentives and options to improve their lives. Your soluton maintains a welfare class.
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As for Phil, you just keep ignoring reality until you work up the courage to deal with it. If necessary this benevolent society will allow to live at the expense of others until you get yourself into such as position.
I’m just a young novice at this sort of thing but would’t creating a tax transfer system move more and more of the burden of low end wages onto the government and therefore taxpayers?
After all, companies have a moral and legal obligation to keep costs low. If the government is providing why not push for 100% transfers or even work for the dole positions to give the lower classes opportunity?
Then of course we would need to restructure the tax system as too much of the burden would be foisted on those productive heros of society with the highest wages. We would need to lower their tax to remain competitive.
We could of course move some of that burden on the shrinking middle class or the lower class. Call it self sustaining.
Sounds good.
And if some of the less agile ones complain of hunger you can give them copies of “Who Moved My Cheese”.
Michael,
Your system harnesses only the productivity of the workforce, whereas a minimum wage harnesses the productivity gained through businesses as well.
I’m suggesting that they engage in training and education, something which they won’t have an opportunity to do if forced into the workforce for ridiculously low wages.
No it won’t. Slaving away at a “dead end” job doesn’t do anything to improve career prospects beyond further such jobs. At least a minimum wage ensure these people can earn a decent living. You seem to be ignorant that many employers actively engage in limiting the career prospects of their employees so they can keep them at a low wage.
I’m not suggesting we do nothing as there are better ways to help the long term unemployed back into the workforce than lowering the wages of everyone else.
tssk: ‘I’m just a young novice at this sort of thing but would’t creating a tax transfer system move more and more of the burden of low end wages onto the government and therefore taxpayers?
That burden is already there. Government departments administer minimum wages and a complex welfare payment system for people at the lower end and guess who pays for that. I’m proposing we simplify and streamline it with a view o achieving hte same (or better) result with less bureacracy. Furthermore, it’s a left-wing myth that increasing the minimum wage makes this entity called ‘business’ look after the poor. Business consists of the productive behaviours of people, and the productive people are the ones who support the non-productive ones whether you do that through tax or minimum wages.
If the government is providing why not push for 100% transfers or even work for the dole positions to give the lower classes opportunity?
Well, a negative income tax is like a work for the dole system, but it still allows the market to function effectively and it also automatically manages the transistion from welfare to work.
We could of course move some of that burden on the shrinking middle class or the lower class. Call it self sustaining.
That burden is already very much on the middle classs.
desipis: Your system harnesses only the productivity of the workforce, whereas a minimum wage harnesses the productivity gained through businesses as well.
Please clarify this one. Start with the fact you are taking people out of the workforce (5,600 in the economic boom times and tight labour market of 06 to 08) and show me how the extra productivity gained through businesses makes up for this and delivers a better overall outcome.
I’m suggesting that they engage in training and education, something which they won’t have an opportunity to do if forced into the workforce for ridiculously low wages.
No it won’t. Slaving away at a “dead end” job doesn’t do anything to improve career prospects beyond further such jobs. At least a minimum wage ensure these people can earn a decent living. You seem to be ignorant that many employers actively engage in limiting the career prospects of their employees so they can keep them at a low wage.
This kind of approach reminds me of when the trade traineeships first came in as a replacement for the traditional apprenticeship – the idea that we could take someone, give them an abridged classroom course, a bit of contrived ‘on-the-job’ training, and bingo, you’ve got a qualified tradesman. Then we had a shortage of tradesman which formed the poltical issue for the middle Howard years. At least it was good for real tradesman helping to provide them with the wages equivalent to university qualified professionals, and prospective migrants who had trade skills and could get into the country due to being qualified in a critical trade.
Knowledge and competency comes from working on the job. Once you’ve mastered that then start looking to further training. People who are on the minimum wage are often there because the classroom type training they’ve had to date hasn’t been effective at giving them the skills they need. Left-wingers love to come up with artificial programs and schemes to help the unemployed, but only end up removing them more and more from the environment they need to integrate into. To a left-winger, hard work is always ‘slaving’ not a noble atttempt at improving your lot in life, and employers are always the enemy who only have the worse intentions for their employees.
Sorry, I was referring more to income from productivity. For example: worker A produces $10 worth of services or value improvements to goods and is paid $5, with the other $5 going to the employer A. While worker B produces $6 worth of services or value improvements to goods and is paid $2, with the other $4 going to the employer B.
You want to put the welfare burden all on the $5 going to work A. I want it to come from the $4 going to employer B.
Again you’re thinking of skilled labour. There’s a big differents between tradesmen and unskilled labour. Much of the minimum wage work does not reward skills, beyond the basic level picked up in a number of weeks. The person serving you at Macdonald’s isn’t going to get a pay rise because they can server you 5% faster. The skills they develop have no value outside their immediate employer and hence are worthless in wage negotiations.
Yes, many people use those low level jobs as stepping stones to further their career up the ladder. However for many other people those low level jobs are their careers and the minimum wage is the only thing enabling them to benefit from their productivity.
The person serving you at Macdonald’s isn’t going to get a pay rise because they can server you 5% faster. The skills they develop have no value outside their immediate employer and hence are worthless in wage negotiations.
I’d be careful using McDonald’s as an example for your argument. In some circles kids are encouraged to get McDonald’s employment on their CV when they’re seeking part-time work, and their parents aren’t preparing them for life on the minimum wage. McDonald’s employment is, in some circles at least, considered to teach things like teamwork, working within processes, customer service and presentation, working within quality management systems and even leadership. McDonald’s also spends money on training staff and developing leadership potential. Furthermore, perhaps not regularly, but still quite consistently, in business magazines you will still read of executives, including quite high ones, speaking of the role McDonald’s employment played in forming some aspects of their approach to business or management style. In fact, I think I’m the one who should be using McDonald’s in my argument.
However for many other people those low level jobs are their careers and the minimum wage is the only thing enabling them to benefit from their productivity.
Or keeping them from benefiting from their productivity.
Update: New post.
Coming in belatedly in with an observation about John X’s #185 comment.
If I had a child that killed themselves because they couldn’t get a job, my first thought would be what kind of parent was I to raise someone who permanently gave up when confronted by temporary adversity. My very last thought would be dishonouring my child’s memory as a cheap shot in an ephemeral blog thread. And jo observed, not in the service of any coherent argument either. Just smearing people you disagreed with.
If any apology is owed here, I reckon it’s from John to his son.
But, especially as he hasn’t returned to pick up his points, I reckon it was just a cheap Greenslime level trolling exercise all along.
And going back on OT, ’tis interesting to note how so many arguing against the concept of a minimum wage, echo in tone and style those arguing against other socio-political-economic milestones like abolishing slavery, bankruptcy laws and universal suffrage.
Which is not to say the argument for a minimum wage is advanced by the dickheadness of some opposed to it, but rather to point out that much of the more emotional language and arguments used by all sides has been heard many times before about issues that are now complete non-issues.
Nabs, I’m inclined to agree.
Michael,
They’re exactly what I’m talking about though. A business that has productive employees and yet manages to pay them bugger all. A reduction to the minimum wage will see the wages of thousands of McDonald’s employees cut (not so much directly to individuals but throughout the next hire/fire cycle) leading to that money going as profits a significant portion of which will go overseas, instead of the money going to the workers and stimulating the local economy.
McDonald’s employees are quite productive in providing the service that they do, and yet get paid very low rate. Why do you think it’s fair that they only get to benefit from a small portion of the wealth that they generate through their productivity?
Sound familiar?
Oh noes. Beware all does seeking wage justice. You playing into hands of Nazis, so desist emmediatly or else hoo noes what mite happen.
No, it’s a good point, Adrian. Nazi Germany significantly increased workers’ wages, introduced all sorts of unprecedented paid leave entitlements and near abolished unemployment (if we forget about de womyn) and still needed slave labour of other countries to feed its hungry productive craw.
Now what was that again about how under capitalism, particularly one undergoing severe economic crisis, wage rises always mean job losses?
I think a job at McDonald’s (or any low-paid job dealing with the public) is a great idea for teenagers. Mostly because the job is so shit that they are more appreciative of good work when they get it, and more likely to treat low-wage workers with more respect for the rest of their life. There’s also the good habits and skills they can pick up, but I think they’re less important.
True, Jarrah. My stint at McDonalds made me a trade unionist.
Jarrah,
I agree strongly. In an earlier post I outlined how my daughter helped a small group of casuals being paid below-the-award, to get some restitution. (What made this extra sweet was that the exploiting boss had previously mocked the fact that my daughter was studying Law. Boss 0, Law Student 1.)
Our two kids both worked as supermarket check-out persons, then in several P/T customer service jobs. Certainly gained an incentive to aim for more interesting, regular, better-paid work. Also they observed the rudeness and shop-lifting of some customers. (Suddenly their parents didn’t seem so terrible after all.)
Taught them some elements of responsibility, thrift, planning, self-reliance, tact, compromise, and showed them – as you said – a type of work they would shun if possible. Empathy for the low-paid and casual? Probably, but I’d hope they were always going to turn out to be human beings in the long run, in any case.
Yeah, that’s great formerly fatfingers, but how does it fit into a genuine economic assessment of the wage treatment of lowly service workers?
It sounds suspiciously like you’re thinking of other things than freedom and markets.
Please slap your own wrists.