I just love it when ‘experts’ write about stuff about which they know nothing. It is extremely revealing of their biases and intentions.
Macreconomist, Stephen Koukoulas, decided to try his arm over at The Drum defending Australia’s high minimum wages. It is quite hilarious … ly wrong.
His two points are:
- The supply price matters;
- Australia’s system of minimum wages reduces red tape for employers (yes, bear with me).
On the first point, of course, markets throw off pay levels at which workers at the margin are prepared to offer their labour services. Yes, we can all go along with demand and supply.
But here’s the thing: the key to the establishment of the reservation wage in Australia, at least at the bottom end, is the DOLE – or what we call the Newstart Allowance – the alternative source of income for low skilled workers.
Check out these comparisons:
Fortnightly Newstart Allowance (no children): $515.60
Fortnightly Newstart Allowance (children): $557.90
Fortnightly full-time job at National Minimum Wage $1282.12
Now I know there are some complications with part-time work, potentially irregular shifts and the taper rate for the Newstart Allowance, but a lot of the associated problems have been sorted out.
The point is this: minimum wage could be much much lower in Australia and there would be no risk of the rates falling below the supply price.
This is simply a nonsensical and desperate point made by the Kouk. And the Kouk should know that most of the decline in the labour force participation rate in Australia has been caused by ageing as well as the soft labour market leading to a discouraged worker effect.
But in some ways it pales by comparison with his proposition of minimum wages reducing red tape for employers. Oh please:
It would be time-consuming and expensive for large firms to negotiate with each worker on their appointment and as each contract came up for renewal. With a set minimum wage, this red tape is eliminated from the cost of doing business.
The Australian system of minimum wages is a red tape feast. Just take a look at the following:
- There are 122 modern awards;
- Each award contains around 10 minimum wage rates;
- The description of the classifications in many modern awards is completely inadequate, creating great confusion for employers (eg. A Grade 2 employee is someone who undertakes tasks above a Grade 1 employee)
- There are extreme complications when it comes to penalty rates and shift allowances and whether or not the casual loading is included.
And it if individual wage setting is such a nightmare for employers, why is that 37 per cent of employees have their pay set on an individual basis (45 per cent for full-time employees)?
The reality is that if employers were free to negotiate/set rates of pay for all their employees, including on a take-it-or-leave-it basis, there would be massive reduction in red tape for them.
Here is the desperado piece from the Kouk:
To suggest that minimum wages are a path to poverty is emotive and arrogantly assumes workers will work for whatever pay is offered to them, writes Stephen Koukoulas.
The Institute of Public Affairs’ Chris Berg reckons set minimum wages are “creating a poverty trap”given the laws do not allow firms to pay a wage below the legislated minimum which at the moment is $16.87 an hour.
This is not correct.
In his article in The Drum, Berg rightly notes that the laws of supply and demand work in the labour market, and he refers to a range of research papers that conclude that if the price of labour is too high, driven by a minimum wage, then employers will “shrink their workforces” which means less employment and higher unemployment.
Like many other low-wage proponents, Berg looks at the market dynamics of the labour force only from the demand side; that is, how much labour firms will demand given a particular minimum wage. The higher the wage, the lower the demand for labour; and the lower the wage rates, the higher the demand for labour. The issue of supply, which is an individual’s willingness to supply their labour services for a given wage, is ignored. Continue reading