A query from Café Hayek about the Australian labour market

Russ Roberts at Café Hayek has put up this post about the Australian labour market on Australia’s Minimum Wage. I will write to him myself but I am curious if there are any other thoughts he might find of interest.

But the legacy from the years of surplus inherited by these absolutely hopeless economic managers, plus the quite extraordinarily good monetary policy in Australia since the GFC, plus the mining windfalls that have now been dissipated, have all contributed to the labour market not being worse than it is. And of course the unemployment rate started at 3.9% when the GFC began which rose to 5.8%, so 5.4% is quite an increase since then and there has been hardly any genuine improvement and things are now getting worse. Not to mention the fall in the participation rate which has helped keep the number under six percent. And there were also the very unusual circumstances we met up with in 2009 including the fact that our banks were never under threat because of the financial meltdown. Anyway, this is from Russ Roberts.

A number of people have asked me (Russ) about Australia’s minimum wage. It’s $15.96 an hour. Yet the unemployment rate in Australia is only 5.4%. The implication is that maybe the minimum wage doesn’t have the effects it is alleged to have.

Could be–maybe the laws of economics don’t apply to Australia. Or maybe the laws of economics don’t apply in countries that start with an “A.” Or maybe the world is a complicated place and you have to think carefully about how it works.

My first thought is to wonder how the minimum wage is enforced. Does it apply to all jobs? I know it doesn’t apply to all ages at the same rate–younger workers confront a lower minimum wage:

For junior employees, the minimum rates are:
Under 16 years of age $5.87
At 16 years of age $7.55
At 17 years of age $9.22
At 18 years of age $10.90
At 19 years of age $13.17
At 20 years of age $15.59.

But still, every one over 20 years of age earns at least $15.59 per hour? Shouldn’t that lead to more unemployment than 5.4%?

I would think so, given my understanding of Australian standards of living. And if the law applies to everyone and is enforced. Is it? I don’t know. Here’s what the government web page for the Australian minimum wage say:

The national minimum wage acts as a safety net for employees in the national workplace relations system to provide minimum rates of pay for employees not covered by awards or agreements. National minimum wage orders are made by the Minimum Wage Panel of the Fair Work Commission.

Hmm. What is an award? Here’s some help:

How to find an award

Which modern award (or other arrangement) am I covered by?

The 122 modern awards replace thousands of federal and state based awards, so finding your modern award can be complex. It will depend on factors including the relevant job type and duties, any exclusions that apply in the modern award and what your previous federal or state award (pre-modern award) was.

You’ll need to know which award covers you to use many of the tools on this website.

To work out your pay rates, you will most likely need to know both your modern award and your pre-modern award. There are a number of ways you can locate your modern award:

use our online tool Award Finder
browse our A-Z of modern awards
use the Fair Work Commission (the Commission) Draft Awards audit spreadsheet

One thing I’ve learned. I don’t know enough about Australia’s labor market regulations but it doesn’t appear to be anything remotely like what we call a market here in the US.

And it turns out that unpaid work is on the rise among young people in Australia–what we call an internship here in the US–a way of avoiding the minimum wage–somehow the minimum wage applies unless you pay ZERO. In which case it’s OK.

Here’s a charming excerpt from a recent government study of unpaid work:

The report extrapolates that, if the trend in unpaid internships is left unchecked, it is likely to gather pace as it has done in other countries like the United States, where employers are forced by their competitors into a ‘race to the bottom’. However, the report also notes that concern about unpaid work arrangements, especially as they impact on young people, has become a focus in other developed economies in recent years, especially since the Global Financial Crisis. In the United Kingdom, for instance, the present government has made a concerted effort in recent years to end any exploitation and to ensure fair access by all to the labour market.

Do we have some Australian readers who can tell us more about the Australian labor market?

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45 Responses to A query from Café Hayek about the Australian labour market

  1. Rousie

    Or maybe the unemployment rate isn’t 5.4%?

  2. sdfc

    The participation rate remains historically high as does the employment/population ratio.

  3. entropy


    Or maybe the world is a complicated place and you have to think carefully about how it works.


    I pick that one. Also, if you live in a system long enough, you learn to live within it. If you know what I mean.

  4. mareeS

    More about the Australian labour market…

    Our son, age 28, is a rigger, heavy truck driver, master 5 for boats under 35m, is currently working in a mining capacity in northern Australia and is earning $54 per hour plus site allowances and FIFO. Previously at Karratha, Port Hedland, Myles, Chinchilla and Brisbane.

    However, the work usually averages out at about 3-6 months per contract, (just as well he’s single).

    The pay is excellent for him, but he needs to upskill all the time.

    Our daughter has just applied for a traineeship as a train driver after a couple of years in pub and restaurant management. Average wage on the trains is $85,000. She’s 26.

    There are good jobs to be had if you don’t need to live in Sydney or Melbourne. Our son is FIFO from the Northern Territory, our daughter is looking at FIFO from Port Hedland if the train driver job happens.

    Really, the work’s there if young people are prepared to move around. It’s the old buggers like us that don’t get a look.

  5. James

    Could anyone give their opinion as to what sort of reforms an Abbott government will bring in regarding IR? It’s eating me up that we’ve gone back to the 80s in terms of IR. I follow politics closely but still have not got a reading on Abbott about how he will approach this issue in reality. I know he had reservations about WorkChoices and has been very tight regarding speculation about changes to the current law. But could anyone comment on stuff you think he’ll actually do? I know about a few things he’s said – ABCC, forcing losing complainants to pay costs. But that’s all bullshit, let’s be honest. It won’t do anything. We need actual reform regarding unfair dismissal and union powers.

  6. mareeS

    Replying to James at 11.43pm:

    Anything can happen in the present political climate.

    We never expected Rudd to be the nutter he proved to be,we never expected Gillard to be so far below the competence bar, we never expected so many frauds and criminals to inhabit the halls of government, but there you go.

    An Abbott government will be a relief after this wild ride. Speaking for myself.

  7. wreckage

    Make unions meet basic book-keeping standards as per corporations.

    Eliminate the union-per-industry monopoly power.

    These might count as IR, and need to wait for the second term:

    -Give independent contractors free reign.

    -Eliminate minimum hours rules.

    -Eliminate any rule that arbitrarily forces people between part-time, casual and full-time.

    There’s no real need to go much beyond that, but if he were to do so, intro or expand an exemption from unfair dismissal laws for small businesses. More than that will create a panic.

    Then AWA’s or similar for mining, forestry, fisheries, and agriculture. Retail can go to hell.

  8. Samuel J

    The measured unemployment rate understates unemployment since it doesn’t account for those who want to work more hours.

  9. LordAzrael

    The bar for being considered “employed” has been dropped so low that can anyone really interpret anything from it ? Currently you only need to work 1 hour per week to be considered employed. This is GARBAGE at best and FRAUD at worst. Imagine what the figure would be if the threshold was say 15 hours a week (2 days full time). I think the figure would be substantially higher. Then add back people put on training courses or other fudges to artificially lower it. As well as how many are needlessly and uselessly employed by our three levels of (over) government ?

  10. LordAzrael

    “That means, as many critics of the ABS employment figures correctly point out, that the official unemployment number does not count those discouraged job seekers who have simply given up looking.”

    http://www.abc.net.au/news/2012-05-14/janda-doing-a-job-on-employment-figures/4009594

  11. LordAzrael

    and look what I found …. I guess the response will be something like this…..

    http://www.abc.net.au/unleashed/3574380.html

  12. dd

    Any minimum wage effect that might have existed is offset by the massive macro-economic reforms from the mid-eighties to the mid 2000′s. Australia went through a long period of deregulation and reform that was undertaken by successive governments from both sides of politics (specifically Bob Hawke, Paul Keating and John Howard, and their respective governments).

    Even so, Australia’s manufacturing, textiles, and footwear industries – once major employers – have all but disappeared over the past few decades, although obviously they have been replaced by new avenues of employment.

  13. As a dual US/AUS citizen who has spent approx half his life in each country dealing with everyday life (working, shopping, hiring people, renting & owning homes, paying taxes) in each, please allow me to point out (yet again) that the cost of living is far, far higher in Australia than it is in the US.

    $15 in Australia buys about what $8 or $9 dollars does in the states – the difference between Perth where the cost of living is now around the Monaco standard and the US South is especially dramatic.

    Compare two cities I’ve lived in, Perth (pop. 1,740,000) & Houston (pop. 2,145,146) :

    Consumer Prices in Houston, TX are 43.82% lower than in Perth
    Consumer Prices Including Rent in Houston, TX are 41.12% lower than in Perth
    Rent Prices in Houston, TX are 35.48% lower than in Perth
    Restaurant Prices in Houston, TX are 48.46% lower than in Perth
    Groceries Prices in Houston, TX are 39.98% lower than in Perth

    This tool breaks it down even further.

    So, yes, a minimum wage employee gets paid more in Perth than they do in Houston – but then again according to the figures at that site you need to earn around $A 6,300.00 in Perth for every $A 3,709.14 you would need to maintain the same standard of living in Houston. The impact of Australia’s “carbon” tax will probably make cost of living differences even more dramatic.

    I’m not an economist – don’t even play one on TV – but I would think a hell of a lot of factors would need to be taken into account when comparing wages in two such different countries.

  14. face ache

    MareeS, Hi.

    Really, the work’s there if young people are prepared to move around. It’s the old buggers like us that don’t get a look.

    Don’t know how old you Maree but I’m 63. I have a science degree but after 30 years of alcoholism, divorces, serial unemployment and general pain and desperation I got sober thru AA. I worked in gas stations (night shift) for 4 years after getting out of rehab. Lots of laughs but bloody hard. So at 58 I started driving driving metro buses. With a bit of overtime I am getting that 85Gs. No FIFO for me, I live 2 minutes away from the bus depot, literally. A crazy bank gave me a loan of 300Gs to buy a really nice place to live. I know I will never pay it off but at least I can work until I fail the drivers medical. Then my higher power can figure it out. I’ll help of course and do all I can. Sober, employed, what for me is excellent money, happier than I ever thought possible.
    I work in a highly unionised workplace where just about everyone thinks Abbot is terrific and the victim of attempted character assassination (on a par with physical murder in my opinion, and of the 10 commandments. lol) and the opinion of this government and its leader is very poor. They are regarded as an incompetent joke.
    This , believe it or not, is about as close as I can get to commenting on the economy. Some of the other people on here are amazing for their knowledge and the ability to impart it.
    God bless.
    (As I say at AA meetings, “I believe in a Higher Power and if He (IT) really exists, terrific! If He doesn’t then too bad, but it worked for me” Go figure.

  15. sdog
    According to your figures on a minumum wage the Australian will be better off because the minimum wage is more than double.

    Maybe think to yourself would you prefer to be unemployed or minimum wage in Australia or US?

  16. Maybe think to yourself would you prefer to be unemployed or minimum wage in Australia or US?

    If I were planning on being either a dole-bludger or a minimum-wage worker my whole life, I’d definitely go for Australia. Australia is a top country – clean environment, small population, safe, stable, prosperous, fairly racially and socially homogenous without the large pockets of underclass you see in America, and an incredibly generous cradle-to-grave welfare system.

    I’m just pointing out that Oz’s minimum wage, while obviously higher than that in the States, doesn’t actually buy you much more. An Aussie on $15/hour is not twice as well off as a Yank on $7.50/hour if the Aussie has to pay $20 for a cheap restaurant meal but the Yank pays less than $10.

    And then by the time you get to the median wage (almost no-one stays on minimum wage for life), the relative costs of living would tip the balance in favor of the USA, where the median after-tax income might be less than an Aussie’s would be but it would buy you quite a bit more.

    Personally, I think the smartest move is to make your money in Oz but spend it in the States ;-)

  17. Driftforge

    Unemployment doesn’t have to be higher with a minimum wage. However, an increase in the minimum wage will result in higher unemployment.

    Under a minimum wage regime, low value work is either not done, done by government, done in the context of other more valuable work, or happens overseas. Or is innovated around.

    Over time.

    If a government imposes a minimum wage, it is also inherently bound to provide a standard of education that leads to only a minimal number of people being unable to produce work of that value.

  18. MichaelC58

    A good friend of mine employs about 12 people and of those, 2 are unpaid engineering interns who studied here and have to do a 3 month industry internship for their English competency.

    Some of them are excellent, have great work ethic and he (my friend) has already employed one of them permanently and one part time.

  19. Paddy

    In my experience with unpaid work (or my exploitation?), it seems the Fair Work Act actually does try to regulate these agreements. Apparantly it limits the length of an unpaid internship to 100 hours.

    I would imagine that this would be next to impossible to enforce. If the two parties agree to a continuation of the placement, there isn’t much the government can do. Don’t these workers know their rights are being violated(!)?

  20. TerjeP

    The same unemployment rate can be achieved with a higher minimum wage if you have less low skill workers. Australia does a lot of educating.

  21. The same unemployment rate can be achieved with a higher minimum wage if you have less low skill workers.

    *cough*

    Australia does a lot of educating.

    No comment.

  22. The same unemployment rate can be achieved with a higher minimum wage if you have less low skill workers.

    Right. But the change from a position where the minimum wage is (using sdog’s 40% loading) $8.40 an hour to one where the minimum is $16 would be incredibly disruptive.

    As a nation, you have to play the hand you have dealt yourself over time.

  23. Mother Hubbard's Dog

    The labour market in Australia is quite healthy. On the other hand, there is virtually no demand for Labor at all.

  24. “The same unemployment rate can be achieved with a higher minimum wage if you have less low skill workers. Australia does a lot of educating.”

    The Soviet Union educated the crap out of everybody and had zero unemployment. Hardly much of an argument.

  25. Token

    Australia does a lot of educating.

    Based upon recent surveys against children in other countries, it is often not an effective allocation of resources.

  26. A minimum wage is basically a decision to have any location independant work requiring lower cost labour done overseas, and to artificially increase the cost of any location dependant work.

    I wonder if the RBA had control of both the minimum wage as well as the interst rate whether that would provide for better balance of employment rates with other outcomes.

  27. MattR

    DriftForge, whilst this idea would certainly be better than the current setting, it still fails to fix the overall problem. That being the minimum wage, no matter what it is, will lock some people out of the market, make some businesses unprofitable and raise the cost of many products.

    I read a suggestion here that would work much better. Get rid of the overload of pensions and allowances from the government completely, set a minimum income/welfare payment at say $6 an hour for a 40 hour week adjusting for families and children ($240 per week), remove the minimum wage completely and reduce the welfare payment by 35cents for every dollar earned working.

    This way, until someone is earning $17 an hour (just over the current minimum wage) they are essentially paying no tax at all.

    I’m sure there is room for tinkering around the edges (for example around genuinley disabled people rather than the ‘disabled’) but what this system does is simultaneously provide a welfare safety net, encourage people to work and encourage businesses to employ unskilled/low skilled workers. Unions would hate it, but honestly, who cares what unions think?

  28. Token

    Seems the Unions are working hard to drive up the unemplyoment rate of unskilled young people:

    EMPLOYERS have warned a union push to significantly lift the pay and conditions of apprentices would be a “killer blow” for apprenticeships and increase skill shortages faced by industry.

    The Fair Work Commission in Sydney today will start hearing a union bid to deliver substantial pay rises to hundreds of thousands of apprentices.

    Arguing a first year apprentice electrician earns $250 less than an 18-year-old trainee at McDonald’s, unions want the minimum rate of pay of all first year apprentices increased to $423.66 per week.

  29. MattR

    Arguing a first year apprentice electrician earns $250 less than an 18-year-old trainee at McDonald’s, unions want the minimum rate of pay of all first year apprentices increased to $423.66 per week.

    Goodness, what planet are these idiots on? An apprentice tradesman is learning a very valuable skill that he can use to create a much higher income for himself later in life. If McDonalds want to pay their trainee’s more, then good on them! It’s no business of unions.

    This is so typical of the union movement. When businesess simply close their doors to apprentices who will the unions blame? Will they blame the morons that pushed up the cost of Labour, ie themselves? Nope, they will blame the businesses.

  30. Harold

    Scrap the minimum wage and make all public service tiers reflective of the private sector. Teachers and police too, their salaries need to be free floating.

  31. brc

    One effect of the minimum wage in australia is that a lot of low skill work just gets left not done.

    Prosperous parts of the USA have vEry tidy public spaces compared to the untidy mess that is everywhere in Austrlaia, even in rich suburbs. Just about every country on earth has better service for hotels, restaurants and retail than Australia. Austrlaians all have to mow their own lawns, clean their own houses, serve their own food, park and clean their own cars, the list goes on and on. Not making social comment whether this is better or worse, merely observing that making the minimum wage high means a lot of stuff doesn’t get done because its too expensive to do.

  32. Milton Von Smith

    I don’t really understand the logical connection between talking about the minimum wage for teenagers and then saying that the unemployment rate is 5.4 per cent. The current unemployment rate for 15-19 year olds in Australia is 17.8 per cent. Among males aged 15-19 it is 18.8 percent.

  33. Milton Von Smith

    Also, those familiar with the Australian labour market will know that unlike the US system there is no “single” minimum wage. There are hundreds, if not thousands, of minimum wages.

  34. That being the minimum wage, no matter what it is, will lock some people out of the market, make some businesses unprofitable and raise the cost of many products.

    This is an interesting question more in the difference between the short terms effects and the long term ones.

    It is quite easy to predict the immediate change in employment that a change in minimum wage will have.

    Less so what the longer term ‘equilibrium’ condition will be. In the longer term the market reacts in other ways, many described in the posts elsewhere in the thread; a whole host of changes that take into account the presence of a minimum wage.

    On your statement – how do people react to being ‘locked out of the market’ (well, no not locked out, just locked into a minimum offer). Does this drive innovation to increase the value of the labour they provide? Does it drive a change in skill set to be able to provide more valueable services?

    It’s very leftist to focus only on the immediate effect of a change.

  35. The same unemployment rate can be achieved with a higher minimum wage if you have less low skill workers. Australia does a lot of educating.

    Skill level is only one thing, and many low skilled workers achieve much higher wages than average for example a plant operator at a mine site or a person on a production line with a high value product such as a car. In both cases they are very automated when compared to say 40 years ago. Due to high levels of capital invested it is ok to pay higher wages to ensure the workers turn up in a loyal manner.

    A minimum wage is basically a decision to have any location independant work requiring lower cost labour done overseas, and to artificially increase the cost of any location dependant work.

    Well that is great, why would we want to be poor. Obviously there is a limit and Australia is basically working at the limit.

  36. Dan

    Unlike your macca’s employee, an apprentice gets a staggered $4000 payment for them to buy tools of their trade over the four years. After which they can use the tax system to claim a payment for transporting said tools, claim a deduction for the depreciation of the tools, claim a deduction for instant write off tools, claim a deduction for travel between jobs, laundry, PPE….

    Initially, yes, you can make the argument that apprentices are used as cheap labour, but their pay rises every year over those four years even if they are incompetent lazy fools. Upon graduation, so to speak, the average wage for a qualified tradesman is around the $25/hour mark. A fairly decent wage if you work overtime. If you wish, you could set yourself up with an ABN and get even better pay and tax treatment.

  37. Well that is great, why would we want to be poor. Obviously there is a limit and Australia is basically working at the limit.

    It’s not about whether we want to be poor. It’s more about whether we want our poor here or elsewhere.

    You could even look at a minimum wage as a form of foreign aid.

  38. Jarrah

    “It’s very leftist to focus only on the immediate effect of a change.”

    Watch their faces when pointing out second-order effects to them… then watch them change the subject. Both are quite funny.

    “It is quite easy to predict the immediate change in employment that a change in minimum wage will have.”

    It’s quite hard, actually, for small to medium changes in the minimum wage. Of course, a federal minimum wage is a silly idea for a large country with big economic differences between regions. It should be abolished, with the states having a minimum wage if they want to.

  39. It’s quite hard, actually, for small to medium changes in the minimum wage.

    I suspect that at low levels of change you end up with a lot of discretisation effects.

    Of course, a federal minimum wage is a silly idea for a large country with big economic differences between regions. It should be abolished, with the states having a minimum wage if they want to.

    No disagreement there. Is the minimum wage federal? Or do the various states still manage their own awards?

  40. MattR

    On your statement – how do people react to being ‘locked out of the market’ (well, no not locked out, just locked into a minimum offer). Does this drive innovation to increase the value of the labour they provide? Does it drive a change in skill set to be able to provide more valueable services?

    Honestly, I think it depends, there will be some that try to raise the value of their own labour, there will be others that sit at home and drink/do drugs all day.

    Another effect is that the minimum wage is inflationary anyway so eventually we all just pay more for stuff that’s made here. Right up until we can buy it from other, low cost, countries (see retail right now).

    It would actually be interesting to see a proper study to see what the long term affects are.

  41. Dan

    I could be wrong, but there is a national minimum wage set by FWA and all the other myriad awards are a state responsibility. All awards rise in accordance with the % increase of the national minimum wage.

    I think Gillard wanted to bring it all under the eye of the Feds along with OH&S to justify spending your tax dollars

  42. nilk

    Australia does a lot of educating.

    ROFL!

    Depends on what you consider “educating”. It’s remarkable how many people can’t spell an address correctly even with the copy and paste functions.

  43. Driftforge

    Jeff – address the topic at hand, don’t rant.

    Nilk – I’ve often wondered whether a large part of our problem with education is that it is free. If there is no cost, there is no value.

  44. Pyrmonter

    A few, not especially incoherent, stylized facts about “context” that should provide the basis for analysis:

    (a) Australia has seen a fairly steady rise in female participation since 1970, while male participation has tended to fall.

    (b) Australia tends to adjust to labour demand shocks by varying the rate of importation of workers, rather than moving large numbers within its own workforce. For most occupations described as “skilled” there are fairly open channels of immigration; perhaps the chief exception is medicine. Australia has high rates of semi- and skilled inward migration, and a history of resistance to low skill migration. This was related to racially discriminatory immigration policy from the late 19th Century until the late 1970s, which essentially limited the source of unskilled migration to countries now in the OECD, providing something of a floor to unskilled labour returns.

    (c) Australia has a significant and persistent population of the permanently unemployed, often in socially and economically segregated zones of public housing. These unemployed often receive somewhat more generous “disability” support, and are exposed to very steep taper rates to support on re-entry to the labour market, creating “poverty traps”. Disability support numbers have been driven by macroeconomic events rather than any observed overall decline in health, although there is some evidence of polarisation of health outcomes – the poor tend to be significantly less healthy than the wealthy. Support is provided both by pensions, by discounted health care and by discounted housing; the combined effect of re-entry into low wage labour can be to reduce net income.

    (d) There are significant variations in the levels of unemployment by ethnic background, probably reflecting cultural values. Australia’s indigenous population in particular reports very low rates of private sector employment.

    (e) Much of Australian manufacturing and public sector was subject to quasi-judicial arbitral arrangements from WW1 to 1990; these tended to be ignored in times of high labour demand, and to provide downward floors to nominal wages in response to falls in demand. Only in exceedingly exceptional circumstances were nominal wages cut, and then 80 years ago.

    (f) Managerial and professional remuneration was largely unregulated until the late 1970s, although custom and cartel-behaviour (lawful in Australia well into the mid-1970s) probably limited flexibility in practice. The increasing employment of professionals in the public sector, especially in the health professions, has seen increased collective bargaining by professionals.

    (g) Australian cities tend to be economically segregated, leading to pockets of entrenched poverty, with familiar issues: low educational outcomes, limited family structure, inter-generational poverty and difficulty for the very poor to “get a foot on the ladder”.

    (h) For working or middle-income Australians on the other hand there has tended to be a fairly high degree of readiness to move to follow jobs: there have not tended to be large sustained differences in real wages between geographic zones. The qualification to this is that real housing costs have varied significantly between Australia’s regions.

    (i) since the 1980s Australia has seen a steady rise in the years of schooling and tertiary education, with the addition of a year of schooling and significant increases in the post secondary education. Australia moved in 1991 from a four part post secondary education model (liberal/professional Universities; professional/quasi professional College of Advanced Education/Polytechnic; technical Institute of Technology and vocational Technical and Further Education/apprentriceship model) to a binary split between “University” – a much expanded term – and vocational training. Government subsidy has tended to attach to low cost “Univeristy” courses such as business, law and liberal arts, with relatively low take up in engineering/science/maths. Reported participation levels in education for 18-24 yo have risen significantly, accompanied by employer concerns about output quality.

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