A lower minimum
means more jobs


Australian Financial Review, 6th May 2003

The Australian Industrial Relations Commission will today present an important safety-net wage decision on the minimum of $431.40 per week. The Commonwealth’s support for an increase of $12 per week or about 2.8 per cent was a grave tactical, economic and social error.

Tactically, the Coalition failed to recognize that, by contrast with its normal practice when Labor was in office, the Commission would almost certainly continue to award above any Commonwealth proposal. This time the slightly worse economic conditions may cause the Commission to award less than its last $18 per week, though not as much as the ACTU claim of double the Commonwealth’s. It will also likely continue the absurd practice of applying the so-called minimum to higher wage awards - even up to around $1000 per week.

Economically, the Coalition failed adequately to recognize the adverse implications for employment. Professor Phil Lewis, now probably Australia’s leading labour market economist, told last Saturday’s HR Nicholls conference there is "overwhelming evidence" that a lowering of the wage employers can offer leads to increased employment.

Lewis explicitly rejected argument by some fellow academics that any lowering of the offerable minimum would not increase employment because few jobs are available below the current end of the employment chain. He pointed out that, just as the lowering of the price of goods normally adds to market demand, so employers would over time create additional jobs if wages below the existing minimum were offerable.

Significantly, Australia has a much higher minimum wage (relative to the average) than most overseas countries. Surprise, surprise – we also have a lower proportion of our working age population employed than countries with similar economic systems.

Yet many of the 60 per cent of the unemployed who are unskilled would find jobs if the minimum was lower. Indeed, the new statistical series showing an underlying unemployment rate of 13 per cent indicates many more want work than even the 600,000 formally classified as unemployed.

Socially, the Coalition has failed to recognize this means the minimum wage is grossly unfair. It denies employment opportunities to those at the bottom end, does not recognize that wages are an unimportant income source for this group (only 8 percent of its income comes from wages), or that more than half who receive the minimum are in the top half of income groups. What sort of welfare rationale justifies increased minima to the privileged?

Of course, those eligible can obtain unemployment benefits of $10,000 a year. But why can’t employers offer a wage between this amount and the minimum wage of $22,000 pa and thereby reduce welfare recipients?

It is well past time for the Coalition to recognize and publicise the basic adverse economic and social facts behind the minimum wage – and to eliminate the AIRC’s safety net role in denying a fair go to so many.