“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.