January 13, 2014
I see that business groups (eg., Australian Chamber of Commerce and the Australian Industry Group) have been calling for any minimum wage increase to be deferred this year. Members of these groups paint Australia as a “high wage/ low competition” economy. For them, the royal path to Australia’s competitiveness in a global market can only be found in blocking minimum wage increases. Their real position is that the best way to stimulate the Australian economy post the Global Financial Crisis is by eliminating the minimum wage altogether.
Their position one of achieving competitiveness through lower wages leads, which invariably to a decrease in the wages of the lower paid. The aim is to weaken the strong safety net that is designed to prevent an underclass of working poor. Minimum wage laws were invented in Australia and New Zealand with the purpose of guaranteeing a minimum standard of living for unskilled workers. So we have another example of the recent tendency for private interests to outweigh the public interest in policy discussion and choice.
Neo-liberals hold that Australian wage rates are very high by international standards, and our industrial system is dogged by rigidities and that the Coalition Government should liberate the economy from its straight jacket. They argue that:
increasing the minimum wage is a bad way to help the poor (since most recipients are from middle-income households) and it destroys jobs. That means more families caught in the welfare system and more children growing up in homes with no working parents....The minimum wage is bad policy. If it cannot be removed, then it should at least be frozen for several years so that it becomes functionally irrelevant...If the government and their union cheerleaders actually want to help workers, then the best way forward is to increase our national productivity. The government needs to revisit the Henry recommendations for corporate tax cuts and they need to find ways to lighten the regulatory burden, especially on small business.
Does increasing minimum wages invariably led to employment losses as assumed here?
For those workers in the low-wage sector with dependent children, minimum wages in Australia are only marginally higher, after tax, than the social welfare benefits paid to unemployed or disabled workers. Hence, a reduction in the minimum wage could create or intensify “poverty traps.” Advocates of substantial reductions in minimum wages have generally favored “reform” of the social welfare system to reduce welfare dependency.
So inequality would increased due to the Australian economy becoming a dual economy, delivering great benefits to the top 20 per cent of the population, moderate growth for the middle class and very little for those at the bottom.
These business groups, whilst arguing that a substantial reduction in Australian cost levels relative to other countries is required in order to maintain employment and economic growth, never mention the need for a large depreciation of the real exchange rate. Yet the real exchange rate by early 2013 was at levels that rendered uncompetitive virtually all internationally traded economic activity outside the great mines. Yet, after the Global Financial Crisis the way to ensure ongoing economic growth is through the restoration of investment and output in trade-exposed industries beyond resources-- minimally, education, tourism and other services, high quality foodstuffs, and specialised manufactures based on innovation.