What’s the point of hiking a minimum wage nobody pays?

Via The Australian today:

Bill Shorten has launched a fresh assault in his war on business, branding employers as “fat cats” for criticising Labor’s wages policy and threatening to impose once-in-a-generation changes that would force the industrial umpire to deliver bigger pay rises to 2.3 million workers.

Arguing that the principles behind setting the minimum wage had not changed since the advent of the internet, the Opposition Leader said Labor was considering industrial relations law reforms that would require the Fair Work Commission to give greater weight to the needs of the low paid when making its annual decision.

The nation’s three biggest employer organisations — AiGroup, the Australian Chamber of Commerce and Industry, and the Business Council of Australia — blasted Mr Shorten’s plan, warning that Labor would risk one person’s job for another’s pay rise.

I don’t think it will work, either. In the developing circumstances of excessive economic slack and falling (ex-mining) profits, wage rises will result in higher unemployment and therefore lower wages.

And there is another, deeper problem. What’s the point of hiking a minimum wage that nobody pays anyway? Via Adele Ferguson comes a reminder of the release of the parliamentary report into the $170 billion scandal-ridden franchise sector:

…The report will pile pressure on an already embattled sector coming just a week after a landmark report by the Migrant Workers Taskforce, spearheaded by Allan Fels into underpayment of wages found that wage fraud was widespread and had become more entrenched over time. The government responded with promises of substantial reform including the prospect of criminal penalties for employers who do the wrong thing.

The reason is simple: underpayment of workers and the franchise sector are interconnected. Wage fraud in the sector is often a consequence of crushing franchise business models characterised by high fees, royalties, rebates and draconian refurbishment costs.

These models pour money into the franchisor’s pockets but push franchisees to cut corners including ripping off workers to remain afloat.

There is also a preponderance of migrant franchisees that are well positioned to import and rip off their fellow former countryman. Not to mention some kind of segue with the student visa rort trade. See the Canberra Times today:

The government’s recent release of the Migrant Workers Taskforce Report has shown how far we’ve come in identifying and responding to the large-scale exploitation of migrant workers in the Australian economy. The report claimed that at least half of Australia’s cohort of temporary migrant workers are being underpaid, with exploitation of international students and backpackers deemed “widespread” and “endemic”.

It is telling that the report focused its intention on visa holders in these two groups as the primary victims of wage theft. This is a big shift from the traditional focus on skilled temporary migrants who are far less numerically significant in the labour market than international students and backpackers.

International students and backpackers are on visas that are ostensibly for a purpose other than work. Students are here to study, and backpackers are here to holiday, with work as an incidental purpose of both visas. Yet, increasingly, these two cohorts involve temporary migrants with aspirations of further stay in Australia who are using these two visa pathways for a central purpose of work.

MB long ago observed that the rampant importation of cheap foreign labour over this cycle triggered a structural adjustment in the Aussie economy in which entire supply chains internalised wage rorting. Some even go so far as to make labour a profit centre through the selling of visas versus the paying of wages.

We remain highly skeptical that reform, regulation or policing of the sector will make any difference. It is now an entire economic ecosystem, equipped with lobbies for every link in the chain, including the exploited migrants the goal of whom is citizenship not higher wages:

  • For years we have seen Dominos, Caltex, 7-Eleven, Woolworths and many other fast food franchises busted for rorting migrant labour.
  • The issue culminated in 2016 when the Senate Education and Employment References Committee released a scathing report entitled A National Disgrace: The Exploitation of Temporary Work Visa Holders, which documented systemic abuses of Australia’s temporary visa system for foreign workers.
  • Mid last year, ABC’s 7.30 Report ran a disturbing expose on the modern day slavery occurring across Australia.
  • Meanwhile, Fair Work Ombudsman (FWO), Natalie James, told Fairfax in August last year that people on visas continue to be exploited at an alarming rate, particularly those with limited English-language skills. It was also revealed that foreign workers are involved in more than three-quarters of legal cases initiated by the FWO against unscrupulous employers.
  • Then The ABC reported that Australia’s horticulture industry is at the centre of yet another migrant slave scandal, according to an Australian Parliamentary Inquiry into the issue.
  • The same Parliamentary Inquiry was told by an undercover Malaysian journalist that foreign workers in Victoria were “brainwashed” and trapped in debt to keep them on farms.
  • A recent UNSW Sydney and UTS survey painted the most damning picture of all, reporting that wages theft is endemic among international students, backpackers and other temporary migrants.
  • A few months ago, Fair Work warned that most of Western Sydney had become a virtual special economic zone in which two-thirds of businesses were underpaying workers, with the worst offenders being high-migrant areas.
  • Dr Bob Birrell from the Australian Population Research Institute latest report, based on 2016 Census data, revealed that most recently arrived skilled migrants (i.e. arrived between 2011 and 2016) cannot find professional jobs, with only 24% of skilled migrants from Non-English-Speaking-Countries (who comprise 84% of the total skilled migrant intake) employed as professionals as of 2016, compared with 50% of skilled migrants from Main English-Speaking-Countries and 58% of the same aged Australian-born graduates. These results accord with a recent survey from the Bankwest Curtin Economics Centre, which found that 53% of skilled migrants in Western Australia said they are working in lower skilled jobs than before they arrived, with underemployment also rife.
  • The Australian Bureau of Statistics (ABS) latest Characteristics of Recent Migrants reportrevealed that migrants have generally worse labour market outcomes than the Australian born population, with recent migrants and temporary residents having an unemployment rate of 7.4% versus 5.4% for the Australian born population, and lower labour force participation (69.8%) than the Australian born population (70.2%).
  • ABC Radio recently highlighted the absurdity of Australia’s ‘skilled’ migration program in which skilled migrants have grown increasingly frustrated at not being able to gain work in Australia despite leaving their homelands to fill so-called ‘skills shortages’. As a result, they are now demanding that taxpayers provide government-sponsored internships to help skilled migrants gain local experience, and a chance to work in their chosen field.
  • In early 2018 the senate launched the”The operation and effectiveness of the Franchising Code of Conduct” owing in part to systematic abuse of migrant labour.
  • Then there is new research from the University of Sydney documenting the complete corruption of the temporary visas system, and arguing that Australia running a “de-facto low-skilled immigration policy” (also discussed here at the ABC).
  • In late June the government released new laws to combat modern slavery which, bizarrely, imposed zero punishment for enslaving coolies.
  • Over the past few months we’ve witnessed widespread visa rorting across cafes and restaurants, including among high end establishments like the Rockpool Group.
  • Alan Fels, head of the Migrant Workers Taskforce, revealed that international students are systematically exploited particularly by bosses of the same ethnicity.

The only sure way to end the wage exploitation is to restrict the inflow of cheap foreign labour. Sadly, a death throes Coalition is going the other way by opening the floodgates, booby-trapping the coolie-economy for a new Labor Government that will have to take on the entire clusterfvck when it takes power.

Labor should be praised for its commitment to the reform of temporary visa rorting, but there is also permanent visa rorting and it’s maniac commitment to mass immigration, both of which have to raise a question over whether it has the will at all.

Comments

    • Yes, if your competitor is ripping off students & backpackers etc then you have to do likewise or go out of business eventually. That’s why you have whole industries built on it. Without strong enforcement, ie you are almost certain to be caught it will go on, and go on it will as there is no real enforcement, just they occasional headline when some temp complain years later, normally.

    • It’s brilliant Pinky, lure everyone to the papier-maché version of the economy … and then we take over the world.

      Next step – RBA will print its own t-shirts.

      (ObSTR: https://www.dailymotion.com/video/x6if2yk – addictive!)

      Edit: Bloody hell – I had forgotten this – but these episodes are just brilliant! I mean – the one liners and the quotes are just gorgeous, and they apply so much to today’s situation.

      To wit: Scummo to Fraüdentürd (as Brain and Pinky respectively)
      Brain (Scummo): This is a historic day, Pinky!
      Pinky (Fraüdentürd): ’cause we haven’t failed yet, Brain?
      Brain (Scummo): Yees, but besides that! Now quiet, I’m ruminating!

    • There are far too many hospitality outlets – no wonder they are all cutting corners to stay afloat. Plus allowing migrants to get a business visa (by buying a food outlet) is increasing the supply of hospitality places as well.

    • In particular it will drive all small enterprises out of business because, as a proportion of their costs, wages are exponentially higher than the big corps. I think this is part of Labor’s aim. It will, of course, even further trash manufacturing but really manufacturing is a drag on the economy. Coffee shops, big shopping malls, restaurants, big office towers full of expensive lawyers – that’s where the real money is.

      • Good. They deserve to be out of business.

        If those enterprises were any good, they’d be big already. They’re small, ergo, they’re crap.

  1. The causal link between modest wage rises and rising unemployment is pretty tenuous – despite endless claims that it will increase employment significantly, we’ve seen wage CUTS have precisely zero effect at causing employment to rise in the affected sectors. The pay rise doesn’t disappear into a vacuum – the worker takes it to the next business and spends it.

    • Lef-tee
      PLEASE take a few minutes one day to really think about how money flows through a real economy and what changes money causes in that economy as it flows.

      • You cannot change the mind of one who’s ideologically captured. “A survey says …”

        Meanwhile, back in the real world, a world in which common sense is prevalent …

  2. St JacquesMEMBER

    E X A C T L Y. The system with work visas and massive immigration is designed to crush wages.

  3. The examples given above might indicate a broken and avoided system regarding the minimum wage, OR it might indicate the regulation works, albeit imperfectly.

    What I was expecting by the title of this article was that someone finally acknowledged that, in a world of Enterprise Agreements and “Modern” Awards, that the minimum wage actually applies to three fifths of bugger all workers.

    On that, is there any other country in the world, that isn’t called Cuba or Venezuela, where the government sets minimum wages by industry, job type and time/day of the week? Project that level of workforce inflexibility into a major recession; what do we think the outcome will be for people desperate to work a couple of extra shifts and who are willing to take a rate cut just to bring some cash in? The employer and employee might be willing but the system says no.

    • Nail meet hammer. The award system is absolutely crazily over-complicated. But that is the Australian way!!!

      The even crazier thing is there are quite a few awards (with some very overpaid workers) who have their annual pay rise referenced to what the Fair Work Commission does to the minimum wage. They were laughing last year when they got a 3% rise – again unintended consequences.

    • Jumping jack flash

      yes, unlimited!

      Infinite debt, and with it, instantaneous riches.
      Just a matter of time until you get your turn… any minute now… and blammo! Instant riches.

  4. Bill Shorten needs to read some Thomas Sowell. The real minimum wage is zero – that is what is paid to someone without a job. Raising somethings price (labour) will naturally reduce its demand. In an internet age (as he points out) this will result in more offshoring.

    But yeah, bring it on and the whole house of cards of the Australian ‘economy’ falls down quicker.

  5. Honestly…

    If you’re running immigration balls to the wall, you’re probably better off following… ?Milton Friedmans? advice and ditching minimum wage.

    It’s the sort of thing that only works when the rest of the system is stable.

  6. While Shorten’s comments on fat cats has some merit – a lot of companies pay execs salaries that are obscene – politicians are not backward in putting their nose in the trough. in addition to salaries that far exceeds many members earning capacity in the free market, they get extraordinarily-generous tax free travel entitlements including family travel entitlements, electorate allowances which if unspent can become taxable income, super contribs at 15.4% of salary, and retirement gifts such as free post retirement travel for up to 10 trips each year for life. If he is serious about fairness, he should look first at his own house.

    • You can tell how serious politicians are about actual wage increases by looking at their bargaining with the public sector. When a government offers generous pay rises to the APS I’ll believe they are interested in wage rises, If they continue to crucify the public service they are clearly just virtue signalling for the populace.

      • The APS pay rises are larger that the average in the community. Yet the community is expected to give up more income to fund higher wages for PS?

      • Not for typical workers. Senior executives and pollies maybe.
        see https://www.smh.com.au/public-service/defence-department-public-servants-vote-yes-to-new-workplace-agreement-20170621-gwv8ng.html
        “Front-loaded pay increases, for workforces that have not had a general pay-rise since 2013, and the main public service union’s decision not to run strong no-vote campaigns in the present round of ballots, have also played a role in agreements being accepted.”
        4 years of no pay rises at all. Is that better than the private sector?

        PS the government doesn’t expect you to give up income to pay the wage rises, it expects you to pay private monopolies more to pay for them, along with greater profits. That sounds like a much better deal.

  7. kiwikarynMEMBER

    One only needs to look at the UK at the moment to see the effect of halting low skilled immigration – unemployment is at a record low, and wage rises are growing the fastest in 10 years. But hey, whats real world economic facts got to do with theory eh?

      • Jumping jack flash

        What’s their private debt like? As high as ours?
        The fundamental reason for this mess is the debt that everyone has to repay.

        If businesses put their prices up to increase wages then everyone simply buys the stuff those businesses sell directly from China and they go broke. Better to employ cheaper labour and then pocket the difference while maintaining prices.

        There is a hard limit to that hack of course, and we’re pretty much there, and its arrival is reflected in the most recent statistics.

  8. SoMPLSBoyMEMBER

    Well, were on ‘our’ way and there is no turning back now.
    The ‘Australian Empire’ has a nice ring about it!

  9. The higher the minimum wage goes (and is enforced), the quicker automation and robot development will advance – until you reach the logical and inevitable point of a few owners of capital controlling most of the factors of production and the unemployed masses subsist on a subsistence level of UBI. Where am I wrong?

    • Nowhere, but exporting all labour to the developing world is already leading us there, and the tech will appear eventually wether we do this or not. So what exactly is your point. We are merely returning to the natural order of things, where a small portion of the population owns everything and is obscenely wealthy while the rest of the populace live in poverty. It has been this way throughout most of history.

  10. Actually….if you raise minimum wage by the amounts being promulgated then, at least in a small business, all your relativities go to hell. So everyone has to get it which would force the shuttering of most.

    • Yup, I said on this blog a couple of days ago that the impact of a minimum wage rise on large firms is not the same as that on the small-to-medium sized guys. For many of them it is the difference between life and death.

      Still, you can’t tell a Lefty — they don’t do economics. Just ideology. “Hope and Change”

  11. Jumping jack flash

    Maybe it will fix the problem of youth unemployment?
    The conspicuous mention of “adult” in the minimum wage rises hints that wages for kids will remain the same – or lower, perhaps?