Jacob Greber
February 1, 2018
AFR
Australia would jump from having the world’s second-highest minimum hourly wage – behind only France – to being a global outlier under a “living wage” plan being considered by Labor, according to an analysis of OECD data.
The findings coincide with renewed warnings from labour market experts that a structural surge in wages for around a quarter of the workforce would depress jobs growth, crimp consumption as businesses pass on costs, and accelerate the shift away from low-skilled workers to robots and automation.
Above all, said Melbourne University professor of economics Mark Wooden, the move would badly erode Australia’s relative competitiveness, which is already under pressure as other big nations cut company taxes.
Minimum pay for Australia’s lowest-skilled workers would be at least 20 per cent higher than across most other advanced economies. Against New Zealand, it would be 33 per cent higher, 46 per cent greater than the UK’s, 53 per cent more than Canada, and 72 per cent more than the US.
Tapping into growing public angst over weak growth – which is weighing on people’s ability to pay off high housing, debt and electricity costs, Labor leader Bill Shorten on Tuesday pledged to lift the pay of at least 2.3 million Australians on awards, declaring that the “minimum wage is no longer a living wage.”
Despite growing warnings from businesses – especially smaller companies – the opposition has signalled it is looking seriously at a union plan to set the minimum wage at 60 per cent of median incomes – up from around 54 per cent.
“The only way you can believe this is a good outcome is if you believe – and some really do believe this – that raising the minimum wage should have no effect on employment whatsoever,” said Professor Wooden in an interview on Thursday.
“If you do believe that, then why stop at 60 per cent of median income – why not make it 200 per cent? No one actually believes there’s not a relationship.”
The figures, based on an analysis by The Australian Financial Review of Organisation for Economic Cooperation and Development data adjusted for purchasing power parity, show the real minimum hourly wage was the equivalent of $US11.10 in 2016, the world’s second highest. Under the living wage plan that would rise 11 per cent to $US12.30.
While there are few serious studies of how minimum wages impact employment in Australia – largely because there hasn’t been a counterfactual for decades – Professor Wooden said there was little doubt that raising the benchmark would erode pay compliance among already squeezed smaller employers, raise consumer costs, and spur bigger firms to more aggressively switch to technological alternatives to labour.
“Raising the minimum wage for the most routine work imaginable will only ensure they embrace more technology to remove those jobs,” he said.
‘That’s a nonsense’
Shadow treasurer Chris Bowen said Labor’s plans were about addressing the fact Australians on low incomes are struggling with big cost of living increases. “Unlike the government we recognise this is a problem,” he said, adding that it was a concern shared by many in business worried that the lack of wages growth is damping economic demand.
Professor Wooden questions the focus on the lowest-skilled workers, who are currently getting the nation’s highest wages growth.
Last year’s Fair Work Commission decision awarded around a quarter of the workforce an effective 3.3 per cent pay hike.
Given the national average for all workers currently at 2 per cent, the commission’s decision implies “a lot of workers are getting far less than 2 per cent. And they have to be people with higher skills”.
Professor Phil Lewis, from the University of Canberra, says a key flaw in the union movement’s proposal is that it confuses what an individual is paid with a household’s required living standard.
The issue dates back to an argument that has been at the heart of industrial disputes since the so-called Harvester judgment of 1907, which established what an unskilled male worker needed to keep a wife and three children in “frugal comfort”.
“That’s a nonsense in today’s labour market,” said Professor Lewis. “Living standards don’t apply to a person. They apply to a household.
“In today’s labour market there are all sorts of people – students, young people, single parents, families with two or three or four children, families with two or three people working, if they have a teenager – who make up a household.
“If you’re the second-income earner, the minimum wage might be a good contribution to the family.
“So the level required to maintain a standard of living is very variable. And changing a variable like wages just mean employers will be less inclined to hire people, and there will be fewer jobs, particularly for the most disadvantaged.”
Both Professors Wooden and Lewis challenge the argument that the minimum should be about addressing inequality.
“Trying to make employers pay more money for a flawed social security system is saying that employers should bear the burden, which they will pass on to workers through unemployment and to consumers through higher prices,” says Professor Lewis. “You’re causing all sorts of resource allocation problems.”
Professor Wooden adds: “the Harvester decision was the notion of a living wage. It was very much delivered in a world where there were no other support mechanisms.”
Mr Shorten’s suggestion is “smoke and mirrors” because it suggests binding the minimum wage to a relativity, such as median incomes.
“Surely the living wage is an absolute concept? I can see how it changes over time, but why is the living wage dependent on the incomes of the people around you.
“The idea of 60 per cent has been plucked out of the air.”
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