Larvatus Prodeo

My post last week on the decision to decrease the real wages of those reliant on awards for their pay by the so-called Fair Pay Commission sparked a somewhat heated thread, largely around the contention by some commenters that it was some sort of undisputed law that a rise in minimum wage rates leads to greater unemployment. Apparently, too, anyone who advocates anything other than a real wage cut for workers on low pay is morally bankrupt, and personally responsible for unemployment.

So, I was interested to read Ben Eltham’s piece in New Matilda today, which covers the FPC decision, and also segues into a valuable discussion of other aspects of employment in Australia. But what is key in the current context is Eltham’s citation of a study by John Quiggin and Steve Dowrick:

When John Quiggin and Steve Dowrick analysed the literature on minimum wages in 2003, they found little relationship between minimum wages and employment levels, but a very strong relationship between low minimum wages and increasing inequality.

Countries like the United States with low minimum wages had much greater levels of inequality than countries with higher minimum wages like Australia and the members of the European Union. The reason appears to be that holding minimum wages low doesn’t destroy many jobs, but it does have a broad impact on inequality by holding the wages of low-paid workers down across the board. “There is little reason to expect strong employment benefits from freezing minimum wages in nominal terms, that is, reducing minimum wages in real terms,” Quiggin and Dowrick concluded.

The Quiggin and Dowrick paper can be found here [link to pdf].