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“Australia needs a pay rise,” says Sally McManus, supporting the ACTU claim for an increase in the minimum wage. And all at union HQ agree. If you pay people more they will go out and spend and, voilà, jobs galore. It’s called Magic Pudding economics.
Back in the rational world, increases in the minimum wage are a curse on the unemployed. Of course, they are a boon for those in work who would in a free market earn less than the legislated minimum. But a floor under wages, set at an artificially high level, is bound to reduce the availability of low-skilled jobs. This economic law is as immutable as the maximum speed of light in a vacuum. It can’t be changed, however much leftists and other assorted economic illiterates think it can.
The ACTU under the leadership of Ms McManus wanted the Fair Work Commission (FWC) to award a minimum wage increase of 7.2% or $50 per week. The Commission settled on 3.5%. As from 1 July, this brings the minimum wage to $18.29 per hour or $694.90 per 38-hour week. And the increase flows through each award; through every business whether they can afford it or not. It is, quite simply, a ridiculous and damaging way to conduct national economic affairs.
The latest decision cements Australia’s place in having the highest minimum wage among those countries which set them. The disparity between the Australian (adult) minimum wage and those set elsewhere is marked. Measured in Australian dollars, it is some 30% above the German national minimum wage, 50% above the UK’s, and 80% above Japan’s. The US national minimum wage at US$7.25 is also at the same level as Japan’s, though a few US states and cities have set higher minimums.
What persuaded the FWC to think that raising the minimum wage is a good idea? Throw economics out of the window. For May this year, the ABS reported a youth (those aged from 15 to 24 years) unemployment rate of 12.2%. And an underemployment rate (encompassing those unemployed and those working fewer hours than they would like) of 17.6%.[i] Good reason, a rational economist would think, to lower not to increase the minimum wage.
All told 5.5% (or 724,00 people) were unemployed in May and 8.5% underemployed. Before you think that is not so bad, in the late 1960s and early 1970s the unemployment rate stood at 2%. We should resist thinking that the current situation is anywhere near acceptable. That’s what governments and unions would like us to think.
Unemployment is crippling for those left on the scrapheap. It should not be sanitised by creating a modern myth, echoing Marx, about the unavoidability of having a permanent reserve army of the unemployed. There are many reasons why unemployment is higher than it ought to be or need be. All of them, without exception, lead back to government interference and ineptitude. Look to the obstacles put in the way of Adani and to government orchestration of higher power prices to find some. But, among the steps that could be taken to reduce unemployment, there is no doubt that removing artificial wage rigidities, including minimum wages, would help significantly.
McManus apparently believes minimum wage rises are good, as are generous penalty rates, because she thinks that the money will be spent in local businesses and communities and create jobs. Of course, this is economic nonsense. It is a widespread nonsense in leftist heads. Where does it come from? It comes, I guess, from a misinterpretation of Keynesian economics. But, really, as crackpot as is much of his economics, Keynes was not so silly as to suggest that pushing up wages would increase employment. In fact, he agreed that lower real wages would add to employment.
McManus and her union mates should think about it. If higher wages result in more spending and jobs, why stop at an extra $50 a week? Go for broke! There is only upside. More wages, means more spending, means more jobs. “The more you eats, the more you gets.” It is the equivalent of alchemy; of perpetual motion.
I do not believe that leftists will ever get it into their utopian heads that the horse comes before the cart; that production comes before spending. For which, by the way, Keynes is to blame. To be clear, coconuts cannot be eaten until they are picked. Increased spending in local communities will occur when more people are employed; and more people will be employed when the cost of hiring them comes down, not up.
An increase in an already excessive minimum wage is part of a pattern of economic self-harm. Throw in relatively high business and corporate taxation, onerous regulations, environmental zealotry, and crippling power prices. Things could be much better than they are. Among those suffering most are those priced out of gainful employment. Who cares about them? No-one, apparently.
[i] ‘Trend’ estimates.
Unfortunately, the cost of living in Australia is high so people clammer for more income. Businesses hire people as casuals because of the onerous dismissal laws and of course many casuals need several jobs to get what would be considered a liveable wage.
Any increase in wages is offset in product and service businesses by passing on the higher costs to consumers so consumption drops. What is the solution then?
The only real option for the unskilled and underskilled is to improve their education, training and skills and move to occupations that pay higher levels of salary. As a society, we should do all we can to help those people improve themselves, provided they are willing to do their part.
Peter,
This is about as unkillable as zombies. My lesson in this was as a 17-year-old watching the unions destroy an Olivetti factory in Glasgow. The Unions wanted a substantial increase for 200 workers making typewriters. Olivetti flatly said ‘No’. Period. The workers went on strike. Weeks went by with zero progress, but now vandalism and attacks on office staff began.
Olivetti set a deadline: return to work next week under current conditions and rates or we move the factory to Czechoslovakia. This sent the Communist Commissars into a frenzy (as CZ was still a Communist country, so its benefiting from moving jobs from ‘capitalist’ Scotland to Socialist CZ was seen as some sort of treacherous betrayal) to set worker against worker. I was confused as to the logic here, but was now interested to see how they would reconcile this impasse and dilemma. It was all resolved on the TV News that night when a madwoman, literally frothing at the mouth (in the mode of a modern ‘Never Trumper’) declared that she would rather ‘never work again than give in to Olivetti’. Like magic, her greatest wish was granted.
The factory was dismantled and moved (amid violence) and the building was still empty when I moved to Oz a few years later. My father knew some of the workers there – and a couple asked for a job, any job at any price and lower than they had been getting as Olivetti paid out nobody, but went to Court.
In a final twist I heard my father tell a neighbour that Tam McX had asked for a job, but was turned down. He had a good, well-paid job as a skilled tradie, but now he was tainted and unemployed. When asked, he said he had no regrets and would do it again. Apparently joining two dots and and reaching a logical answer was not in his DNA.
My father’s Clyde shipbuilding industry disappeared in similar fashion when the Union representing Riveters refused to allow welded ships to be built so everyone lost their jobs. Well, at least Oz got Doug Cameron from the ashes ….
Peter,
“It is, quite simply, a ridiculous and damaging way to conduct national economic affairs.”
How strange that we use the word “ridiculous” or “laughable” when we refer to something utterly tragic.
I am no economist therefore I cannot even hazard an opinion on your arguments. All I can say with confidence is that, traditionally, in my experience, politics in Australia are teetering on a knife edge between capitalism and socialism at all times. Furthermore, again traditionally, under a Liberal government, given that they have at least two terms to consolidate their policies, the country can enjoy wealth and generally a prosperous life but then something strange happens. The extreme well being affects the brain of the population, at least of a certain portion and moves them to vote Labor. This brings on the well rehearsed Labor economics which is based on the economic aberrations described in your article above. But we have a Liberal government at present. Something is not right.
I would have liked to see the headline: “Silly McManus’s Sallynomics”. Hair-splitting, yes. He/she/it is doing his/her/their very best to overturn capitalism in this country and replace it with jack-boot wearing gender indecipherables. He/she/it is pathetically laughable.
“All told 5.5% (or 724,00 people) were unemployed in May and 8.5% underemployed.”
It is to laugh.
Ar 5/7/2018, there are 24,965,261 Australians.
10,683,838 Australians have jobs.
3.3 million people aged 45 years and over who reported that they were retired from the labour force. This group comprised 1.5 million men and 1.9 million women. Just over half of all retired people were aged 70 years and over. http://www.abs.gov.au/ausstats/[email protected]/Previousproducts/6238.0Main%20Features3July%202012%20to%20June%202013?opendocument&tabname=Summary&prodno=6238.0&issue=July%202012%20to%20June%202013&num=&view=
Of the 6,070,316 ‘families’ have an average of 0.8 children each, ie 4,856,252 children. (http://quickstats.censusdata.abs.gov.au/census_services/getproduct/census/2016/quickstat/036)
So, 10,683,838 working plus 3.3 million retired plus 4.8 million children is ~18,840,000 people of our 24,965,000 people. That’s 6,124,900 adults without jobs.
Granted that doesn’t allow for stay at home mums, but it also doesn’t account for the ‘retired’ people below 65 who’ve simply given up looking for work(I’m guessing most of that 1.65 million). So as a ballpark figure, the unemployment rate is (6.1 million over 10.6 million plus 6.1 million) ie over 36.5%.
And no, I am not considering university students, increasing student numbers has been a way of padding unemployment figures for 40 years. Also remember that students with part time jobs are included in the work force figures!
‘Sallynomics’, indeed, Jody.
Those not persuaded by these well argued points,
should Google ‘Thomas Sowell minimum wage’ for further enlightenment.
Silly Sally Sadly has a Say.
So this I would interpret as the restoration of that dreaded scourge of the Australian labour market – centralised wage fixation. Am I correct?
We are persuaded that the operation of competition policy, enterprise bargaining and the “casualisation of the workforce” has so corrupted the labour market that a “safety net” must be provided in the form of a high minimum wage rate. However, every award and enterprise bargaining round then looks to the minimum as the benchmark from which they commence their assessments and negotiations.
But as I read it, this undoes the gains of the economically rational changes through the eighties and nineties, in the same way that the NBN project undoes the competitive telecommunications industry.
My apologies for making a second (but relevant) comment.
A few years ago I had five contractors working on a project for one of Oz’s biggest companies. They were WELL-PAID. However, the company decided to cut the total value of the contract and gave me three choices:
1. They cancel the contract and replace us with foreigners
2. We accept the cut and reduce everyone’s pay by 5% (equivalent to 2% in real terms – a pittance)
3. Accept the reduction, but keep the pay for everyone at that level, but get rid of one contractor and slightly extend the length of the project as we now only had 4x people working on it.
I told the staff that No. 1. was not an option, but if anyone wanted to leave I would release them from their contract and replace them.
No. 2. was my preferred option as a spreadsheet I gave each of them showed how little effect this had over the remaining 8-months.
No. 3. – I suggested was not the Oz way, but if there was agreement that one should go, then I would accept that.
To my horror three people preferred greed to ‘mateship’ and a ‘fair-go’ of looking out for each other. Fortunately, there was no agreement as who should have their life destroyed, so I went for No. 2. One person bitched and whined endlessly and convinced me the ‘new Oz’ had dawned on a new Dark Age of ME! Me! and only Me!
Sally McManus is just another of those union/Labor people who believe that money grows on trees. The constant bagging of the very people who provide the real jobs, as opposed to public servant jobs, shows a failure accept the basic tenets of economics. That is that capital and labour are symbiotic. They each depend of the other. Shifting the balance between one at thee expense of the other creates the problems we have been subjected to for the past 10-15 years.
en passant, many years ago there was a company called Tubemakers who had a really huge contract, with penalty clauses for late delivery. Management put it to the workers that they could work all the overtime they wanted or they could allow employment for another 60 people to work one of the shifts. The workers chose the overtime and the company ended up paying huge penalties for the late order. Productivity did not rise as expected, just the expense.
Unions are now an outdated entity as we have so much legislation covering all aspects of employment. Their presence is merely a spoiler of what could be a most successful relationship between business and the employed.
Mags,
In one of my previous lives I had let and managed a contract with Tubemakers.
We got rid of our stock and contracted with them to hold and maintain in ‘immediate delivery’ condition a quantity of pipes. We paid the costs of the maintenance, but reserved the right to retain our inspectors on the ground to ensure the quantities and conditions were met. It worked well.
Where we had difficulty was when we ordered additional or odd-sized stock (generally for the repair or replacement of ancient pipes). Their lead time was up to 6-months+. Sadly, we began importing from China as flexibility and doing anything out of the ordinary required delay and negotiation with the Union for extra pay, so eventually Chinese pipes became more or less the norm.
One classic case was where we wanted pipes in inches, not cms. They still had the old casts and could do this, but the workers wanted a 30% loading for ‘non-standard’ work. We bought the pipes from China.