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How Minimum Wages Destroy Jobs

On 3 June the HR Nicholls Society issued a press release strongly criticising the decision of Fair Work Australia to increase Australia’s minimum wage by 4.8% pw to $29,640pa. It pointed out that this unfair decision makes it much harder for low skilled workers to obtain employment, including the more than 700,000 who are not classified as unemployed even though they want to work and are available to start within 4 weeks.

Of course, Australians in that position are able to access the dole. But that reduces their living standards to around $12,000 pa when they could be employed at, say, $20,000 pa if it was not illegal to pay such wages.

In its advice to the incoming government, the Department of Finance has effectively endorsed the Society’s position. The Department’s so-called Red Book outlining needed reforms called for “greater flexibility in workplace relations in order to encourage employers to hire unskilled labour “.  

Of course, unskilled workers in some overseas countries are even more unfortunate. The New York Times, widely regarded as a progressive journal, has illustrated the horrendous situation in South Africa arising from the government’s insistence on paying a minimum wage well above market rates. That absurd policy is obviously a major contributor to the one third of the work force being out of work –and to the closing of small businesses.

In line with the Finance Department’s advice, the Gillard government needs to undertake a major review of its policy on minimum wages. This is a matter that will be given further consideration by the HR Nicholls Society when its board meets tomorrow.

Des Moore
Board Member, HR Nicholls Society
6 October 2010

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