Wage regulations: yet another measure undermining living standards

See saw Marjorie door
Johnny shall have a new master
He will earn but a penny a day
because he can’t work any faster

The unions have found a cause in Barry’s– a brother and sister run café in Melbourne’s Northcote.  United Voice got a big enough crowd to fill a TV screen to protest against “wage theft”.

The café was paying casual staff the (lower) permanent staff rate but giving them free coffees and meals.  The ABC, which as a taxpayer financed supplier can readily afford to pay the wage rates designated by some isolated umpire, was offering great publicity to the union campaign.

Quite reasonably, one of the owners said of the employees, “I presumed that when they accepted the job, they were happy with what they were getting.”  Such a statement would be obvious in any other transaction – we are rightly outraged when the ACCC declares that petrol cannot be discounted because the discounter may hurt their competitors – but fortunately such distortions are rare in transactions involving goods and services.  Not so with wages, and the restoration of the union control with a Shorten ascendency would offer the certainty of additional rigidities and cost escalations being put in place.

Sadly the militants who sought to prise higher wages from the café will have considerable difficulty getting further such work – but, the area being Northcote, the employees concerned are likely to be student activists looking for a few extra bucks.

Labour is likely to be around 70 per cent of costs of restaurants.  To the degree that the café in question is forced to raise wages by the 20 per cent required under the award (pretentiously called the “modern award”) its customers will need to pay more for their food and coffee and, as the industry is highly competitive, its product is cost reflective so there will be a reduction in the supply of such cafes.

It would be very different if the restaurant were one of the many Chinese/Vietnamese restaurants where actual pay rates are commonly half of the $21 stipulated in the award – and the resultant proliferation of low cost, good quality food is a benefit to all of us.

The “award”  for the hospitality industry is farcical.  A duly authorised body of men and women have prescribed rates (permanent, causal, Sunday, Saturday, holidays etc) which runs to 104 pages and defines some 100,000 situations.  For most employees the rate is likely to be not too different from the market rate but, especially for casuals where supply has to adjust to what consumers actually want, the rates are likely to be excessive.  This is partly because, as in the words of the famous nursery rhyme, the employee is less skilled and less productive.

While many countries have minimum rates of pay, Australia’s are among the highest in the world, even compared to more wealthy countries – the Hong Kong minimum wage is $6 per hour and in Germany it is $15 per hour.  No other country has a court of law that determines the wages that may be set across hundreds of thousands of different jobs.  Understandably, every other country would consider such a Herculean task to be doomed to fail in setting the fair wage when such a wage is the product of the supply and demand for labor.

For Australia the intervention means those of the more marginal workers that aren’t silent about being paid under the award, cannot find employment and are forced onto the dole.  The impost is represented in taxes paid and reduced profits, savings and general income levels.  Labour market intervention is just one of many areas that savagely undermine the productivity and income levels that Australia could potentially enjoy.

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19 Responses to Wage regulations: yet another measure undermining living standards

  1. John Constantine

    Their incoming shorten looting cartel will boost GDP by employing a vast herd of compliance inspectors.

    Show trials of Kulaks that don’t pay the fifty dollars a week pay rise the actu promises will be mandatory viewing for the regular self-critique sessions small businessmen must attend to keep their social licence to operate.

  2. Leigh Lowe

    Whilst all of that is true, there is something so fitting about a cafe in Northcote being screwed by the unions.
    At least they are off their usual hobby horses.
    Of course, we may find that the cafe folds under pressure and boycotts and the business gets picked up for a song by someone close to the bruvvers.

  3. Roger.

    Fair enough, Alan, but the other side the equation is that unjustified government intervention in other aspects of the real economy make housing, groceries, electricity and fuel unaffordable to people on the most basic wage unless the level of that wage is artificially inflated.

  4. MichelLasouris

    “any’ faster?

  5. max

    If the government raises wages by legislative fiat, fewer people will be hired, not more.

    Why does this constitute an attack on the poor? The minimum wage does not require any employee to be hired. It mandates, only, that if he is taken on, then a lower bound on wages is applied.

    It is thus an unemployment law.

    It implies that low skilled workers will not get jobs. Suppose a worker’s productivity is $7 per hour, while the law requires a payment of $10. If a firm takes on such a person, it will lose $3 per hour. Of course no one can live well on $7 per hour. But, with a minimum wage law, zero will be earned, since he will become unemployed.

    It is no accident that the young, the unskilled, the downtrodden, inner city members, have unemployment rates in the stratosphere, something that simply did not occur before the advent of this malicious legislation.

    Then, there was no such strong association between skill level and unemployment.

    Right now, however, the minimum wage law only attacks the unskilled, the poor, the members of the inner city, the young.

    However, attention, everyone: the minimum wage law is your enemy. Suppose it were raised to $100 per hour. Virtually none of us are worth that amount of money.

    Will this change in law help you? Posit that your productivity is only $60 per hour. That means, anyone hiring you at that wage will lose $40 per hour.  If they do, they will soon be visited by bankruptcy.

    The minimum wage is not a floor under wages, one that boosts them as the amount required by law increases. Rather, it is like a hurdle over which you have to jump in order to get a job in the first place and keep it.

    https://www.lewrockwell.com/2015/09/walter-e-block/abolish-the-minimum-wage/

  6. The award mentioned, The Hospitality Industry General Award, does as stated have a pay rate table which is runs to One Hundred and Four x A4 pages. The table contains Ten Thousand One Hundred and Forty separate pay rates or allowances.
    I know, because I have counted them, individually, painstakingly, with a pencil.

    This is an increase of Six Hundred and Forty separate pay rates from December 2017 – when there were only 9,500 separate pay rates.

    I’m amazed anybody gets it right every time.

  7. RobK

    These over bearing and complex IR conditions were a large factor for me to get out of the hospitalty industry after 13 years, when I employed 6-10 staff. I went into farming in a situation where I employ virtually no one these past 23 years (only odd casual contractors). The hurdles to employing staff are detrimental to everyone (wages are only a part of it). It’s a pity; there are many wonderful relationships that go unformed because the hassles and regulatory risks involved. It definitely means lost overall productivity. There are many IR gun-shy prospective employers out there. This is a big cost to society as it is very sensitive to the cost of welfare for both employees and employers. Plenty of employers burn out because they are reluctant to hire, not through greed but for an attempt at self preservation.
    I acknowledge there is risk of exploitation by unscrupulous employers and there is a need for some kind of guide to minimum standard as indicative but its very counter productive to raise the bar too high.

  8. Amadeus

    My company used to own a couple of restaurants, employed 11 chefs and a total of 45 staff. We had other business interests but our restaurant operations were our biggest headache. Our main business is management consulting: we know what is necessary to run successful, profitable businesses and had assisted many other enterprises become profitable through “best practice” in customer service, menuing, staffing, supplier arrangements and rigorous cost management. We aimed to do better than the industry’s typical cost and gross/nett profit benchmarks.
    We were well positioned relative to competitors and we relished having competitors especially franchised restaurants offering “packaged food” while we offered a la cart at very competitive prices. We knew the franchise fee percentages and supplier costs they the franchised operators were locked into for their licences which gave us a distinctive competitive advantage.
    A couple of franchises tried to undercut us on price by offering some similar product offerings as “blackboard specials”. I met with the franchise operators individually and over a friendly cup of coffee left them with a simple message: the market was big, there was strong customer flow through the retail area and we were happy for customers to decide which product they preferred. BUT if the franchised operators continued to copy our menuing, we would run a marketing campaign to put them out of business by offering their core menuing at substantially reduced prices because we knew what their fees and margins were. We could sustain a price war and remain profitable – they couldn’t. The choice was theirs. Menu copying ceased immediately by both operators and everyone lived happily ever after.
    We had very good relationships with our managers and those staff who appreciated the quality of our product offerings. We paid annual bonuses to our managers and chefs where they had made efforts “over and above” to help make our businesses successful, manage costs and come up with innovative, fresh menuing.
    We called it quits in 2002 after 10 years mainly because management of incompetent and/or activist staff took up excessive time and ludicrous staff costs made our businesses increasingly unprofitable. The cafe/restaurant industry is a satisfying but challenging one but it’s now much more difficult to get the metrics right. The industry has arguably one of the highest small business failure rates by a country mile and many bright-eyed and bushy-tailed entrepreneurs have done their dough – some big time. One key recipe for success in the industry is…avoid employing people other than family!!

  9. Amadeus

    The labour cost figure of 70% Alan has mentioned needs qualification. For cafes/restaurants, above the line costs generate a GP margin of around 70%. Below the line costs include salaries/wages, superannuation, and other operating expenses. If a business can contain staff costs below 50% they’re likely to be making a modest nett profit. Anything below 50% and they could afford to buy a Range Rover every few years.

  10. Amadeus

    Correction to previous post: “…Anything significantly below 50%…”

  11. yarpos

    The cafe in Northcote will be shut and replaced with a shopfront selling lgbxyz paraphernalia, renewable energy contracts and union memberships. All funded by govt grants. The circle will be complete.

  12. EvilElvis

    If a business can contain staff costs below 50% they’re likely to be making a modest nett profit. Anything below 50% and they could afford to buy a Range Rover every few years.

    Agreed.

    Unfortunately with the whole minimum standard of wages there’s no document outlining minimum effort required or minimum interest to be shown while at work…

  13. EvilElvis

    It will be interesting when Billy Boy gets in. I’m culling my country cafe crew now, it will be a hatchet job when the CFMEU looks like running the show.

    And as usual the conversation revolves around a dense population base, try dealing with these ‘trickle down’ policies and entitlements in country areas. The award wages are the same, the immigration scam creep into the region’s is gaining speed (no need for wage awards with family or to pay tax), the ATO is getting more oppressive and every old slapper thinks you owe them a living.

  14. EvilElvis

    The industry has arguably one of the highest small business failure rates by a country mile

    That’s because plenty of people with money think that coffee machines push out $100 notes and that every cafe they’ve gone to is flat out busy and I’ll get some of this action.

    People are never around to see the quiet days you need to make up for and can’t make the equation of how many coffees you need to sell to break even.

    Then there’s the constant competition from these types, it’s like survivor in country areas. Outlast, survive. Then the supermarkets want to get in on the action and other bigger businesses ‘branching’ out because their core business is failing…

    Then there’s the problem that it’s a female dominated industry…

    My god, I must be a masochist haha.

  15. Leigh Lowe;

    Of course, we may find that the cafe folds under pressure and boycotts and the business gets picked up for a song by someone close to the bruvvers.

    Leigh understands the systems.
    Even the Mafia had enough sense to just scrape off some of the cream – not all the milk.

  16. Helen

    I want to sell up and downsize to something that Captain and I can comfotably run by ourselves – which would still be the labour input of half a dozen or more who are flat our wiping their noses, but have to be on the adult rate immediately of they are 20 years. One time we had a three year jackroo program where staff learned their craft over 3 years afterwhich they were deemed a stockman. But now, no, it is based on age, not experience or knowledge. Something about we owe them a living, or sum such.

    I was totting up the R&M cost over the last 3-4 years, blown up motors, cooked motors, final drives etc, and it left 200K behind pretty quickly. Then there is the small stuff, pliers, tools lost jobs not finished that have to be done again (thus labour times 2 and lost opportunity) gates left open and a years drafting buggered, and it becomes very depressing. Fence not put back up and the wiring cheewed so pump not working so no water down the line, but the motor was going so all must be ok, surely? No lookee is water going into the tank???

    As Captain said to the drivers (I wont grace them by calling them operators) you buggers have your hand out for top dollar, but you are not worth paying when they voluntarily put the dozers in a vulnerable postion and they burned. (That is another 160K) Feck it, I have really had enough of it all, there is no romance, no quiet comfort, no pleasure in it when it seems you are surrounded by innocent mistakes made from inattention to detail and lack of logical thinking. And a lack of will to suceed in a job well done.

  17. Perfectly Frank

    A simple solution to under award payment is for the onus of compliance to be on all parties in the transaction with equal penalties for employer-employee and unions too if they were part of the deal.

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