Alright. It is that time in the annual calendar when minimum wages and the employment effects there from are the issues du jour. So let’s have a quick quiz.
Who out there knows what the Minimum Wage is? If you scurried to the Fair Work Commission web site or various other sources and came back with $18.29 an hour, or nearly $700 for a 38-hour week plus 9.5% supperannuation then BZZZZZ. Your answer is incorrect. Thank you for playing.
The Minimum Wage, to the surprise of many politicians, bureaucrats, unionists and social justice warriors is actually Nil. Zero, zilch, zip. Nada, nuffin, nought. The numbers are quoted above are actually the statutory minimum wage, the wage that it is generally illegal to pay below. Generally illegal unless an employer has entered into a sweetheart deal with a union for the benefit of the employer and union, but at the expense of the workers.
Australia is actually a world leader in statutory wage setting. And much like it was in the early 1900s, the minimum wage was presented a social justice policy whereas it was and remains a policy of discrimination; then racial discrimination, today age and education discrimination.
The basis for the Australian statutory minimum wage dates back to 1907 to the Harvester judgement where Judge Henry Bournes Higgins KC determined that that wages should be based on the cost of living for a worker and his family. Not business profitability or productivity, but the cost of living.
111 years later, a business operating in a competitive and often global market place, should not have a mind to productivity or profitability or geography when negotiating salaries, but rather the cost of living in major metropolitan cities. A business in regional Tasmania has to pay the same minimum as a business in inner city Sydney as a tourist business in Queensland. This all despite different business economics and local conditions.
The statutory minimum wage and penalty rates destroy the employment opportunities for those it claims to protect – the vulnerable, the low educated, those in the regions, low-skilled immigrants and others of disadvantage. Is this fair? What is the view of the fairness fairies to this?
Why? Because much like Governments only being able to set tax rates but not tax revenue, governments and government agencies can only set the price for labour but not the amount of labour that is purchased. Well at least until there is a Greens government which will be a bit more “prescriptive” about what businesses can and must do (if there will be any left by then).
Economists and historians have long shown that the origins of the statutory minimum wage were not about social justice but rather racial bias.
Well noted US economist Thomas Sowell wrote in 2013:
In 1925, a minimum-wage law was passed in the Canadian province of British Columbia, with the intent and effect of pricing Japanese immigrants out of jobs in the lumbering industry.
A Harvard professor of that era referred approvingly to Australia’s minimum wage law as a means to “protect the white Australian’s standard of living from the invidious competition of the colored races, particularly of the Chinese” who were willing to work for less.
In South Africa during the era of apartheid, white labor unions urged that a minimum-wage law be applied to all races, to keep black workers from taking jobs away from white unionized workers by working for less than the union pay scale.
Equally well noted US economist Walter Williams wrote in 2017:
During South Africa’s apartheid era, racist unions, which would never accept a black member, were the major supporters of minimum wages for blacks. In 1925, the South African Economic and Wage Commission said, “The method would be to fix a minimum rate for an occupation or craft so high that no Native would be likely to be employed.” Gert Beetge, secretary of the racist Building Workers’ Union, complained, “There is no job reservation left in the building industry, and in the circumstances, I support the rate for the job (minimum wage) as the second-best way of protecting our white artisans.” “Equal pay for equal work” became the rallying slogan of the South African white labor movement. These laborers knew that if employers were forced to pay black workers the same wages as white workers, there’d be reduced incentive to hire blacks.
South Africans were not alone in their minimum wage conspiracy against blacks. After a bitter 1909 strike by the Brotherhood of Locomotive Firemen and Enginemen in the U.S., an arbitration board decreed that blacks and whites were to be paid equal wages. Union members expressed their delight, saying, “If this course of action is followed by the company and the incentive for employing the Negro thus removed, the strike will not have been in vain.”
Williams further noted about the US:
Our nation’s first minimum wage law, the Davis-Bacon Act of 1931, had racist motivation. During its legislative debate, its congressional supporters made such statements as, “That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.” During hearings, American Federation of Labor President William Green complained, “Colored labor is being sought to demoralize wage rates.”
In both case, a regulatory intervention in the guise of helping people was actually based on helping a politically powerful group at the expense of a politically weak group.
But here is another thing. The statutory minimum wage, in addition to destroying employment, is an outsource of social policy from the state to business – always a recipe for disaster.
If there is a social need for a level of income based on the cost of living for a worker and his family, that is a matter for the state not the business. This can well be achieved through the existing tax and transfer system or, god forbid, the introduction of a negative income tax.
Eligibility for the statutory minimum wage is not means tested. The wife of a billionaire could, if she chose, work in a minimum wage job thus displacing a school leaver. And who would an employer prefer to hire?
And whilst the idea of a statutory minimum wage is to (try to) guarantee a living wage to all workers, it is instead guaranteeing a minimum cost to employers. This is because the minimum wage is set at the job level and not the worker level. Wages are supposed to ve paid on productivity and if statutory minimum wages are too high, this is a discouragement for employers to hire people below the necessary productivity level and to invest in training.
But here is another thing that is seldom mentioned about the statutory minimum wage. Most people currently on them would be on there for lift. In a normal environment, people enter the work force, they learn and are trained and thus their productivity increases warranting higher wages. All statutory minimum wages to is lock those people out – young people, migrants, vulnerable people.
There are of course countries that don’t have statutory minimum wages; despotic and horrible countries such as Norway, Sweden, Finland, Denmark, Austria, Germany, Italy and Switzerland. It must be terrible living in these countries. Just terrible.
But that’s ok. If there wasn’t the periodic arm wrestle over statutory minimum wages what would unions and the ACTU and their lawyers and the employer groups and the FWC have to do otherwise? Minimum wage for some. Maximum wage for others.
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