Coalition rules-out minimum wage cut

The Abbott Government has sensibly thrown-out the Commission of Audit’s (COA) spurious recommendation to slash Australia’s minimum wage from 56% of average weekly earnings to 44%, by letting the minimum wage increase by 1% less than inflation until 2023, a move that would effectively see the minimum wage cut by 19% ($132 per week) in current dollar terms.

As reported in The Australian today, employment minister, Eric Abetz, yesterday announced that the recommendation to slash the minimum wage would not be implemented in the Coalition’s first term, ruling-out changes for the foreseeable future.

The proposal to slash the minimum wage was always a dud idea that would have irreversibly damaged equity in the Australian economy and increased the number of working poor. The COA’s recommendation was also odd in that it was made outside of its terms-of-reference, presumably as a gift to big business from the panel’s Business Council of Australia members.

In its report, the COA argued that Australia’s minimum wage was too high and was “pricing-out” low skilled and inexperienced people from the workforce:

A minimum wage that is too high prevents groups, such as young job seekers, from entering the labour market, inhibiting the development of workplace skills and experience that could increase their wages over time. An excessively high minimum wage is also likely to act as an impediment to the effectiveness of government programmes to get people back to work.

At present Australia’s youth unemployment rate is around 12 per cent compared with just under 6 per cent for the overall national unemployment rate.

As shown in Chart 7.16, Australia’s minimum wage is high by international standards. Containing growth in the minimum wage would improve job opportunities and the effectiveness of the Government’s employment policy programmes.

Yet, as illustrated by The Guardian’s Greg Jericho, “while Australia’s minimum wage is high among OECD nations, our youth unemployment rate is not, and neither is the gap between it and total unemployment”.

Moreover, the overwhelming majority of workers on the minimum wage in Australia are aged over 25:

I suspect few Australians would like to see Australia become like the United States, whose minimum wage is amongst the lowest in the world and where the percentage of low paid workers (i.e. earning less than two-thirds median incomes) is the highest in the OECD (25.1% versus 16.1% as a whole for the OECD).

As noted by Jericho:

A US family on median income in 2012 actually earned less than it did in 1989, while its middle class as a whole has shrunk. That’s a hell of situation to think it is worth aiming for.

If Australia wants to maintain a civilised society, then a decent minimum wage is a good place to start.

On a related matter, the Productivity Commission has also panned the COA’s recommendation to force young singles without dependents aged 22 to 30 who have already been on benefits for 12 months to move to higher employment areas or lose their payments. As reported in The AFR:

Overall, Australia’s labour force is fairly responsive to employment demand in different geographic areas, the commission says in a final report on labour mobility, and this is helping the economy adjust to the end of the mining boom.

Personal reasons such as family demands are the biggest impediments to people moving, rather than factors under the government’s control.

“Forcing people to move is not likely to be all that helpful for them getting a job; the best action there is to improve their employability, their education and training,” productivity commissioner Alison McClelland said.

Perhaps if the Government cut back on dubious 457 visas, and instead invested in greater education and training, then unemployed youth would have more employment options?

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