Calls to reduce the minimum wage? Must be an election on

Australia’s minimum wage – $622.20 per week, full-time, or slightly more than $16 per hour – is “high”, the Business Council of Australia said today.

In a document released today, the BCA called on the treasurer to ask the Productivity Commission to conduct an inquiry into the workplace relations system, including examining

“the extent to which the high minimum wage prevents new labour market entrants from gaining initial experience, to inform future wages policy directions”.

The BCA also wants the Productivity Commission to examine

“the impact of penalty rates on business competitiveness and employment growth, particularly in the retail and hospitality sectors”.

Both of these suggestions are aimed at reducing wages for Australia’s lowest paid workers. A full time worker on the minimum wage is on less than $33,000 per year. This is the rate that the BCA describes as “the high minimum wage”. The BCA seems to suggest that if we lowered the pay for the lowest paid workers, would that allow more people to participate in the workforce, to ‘gain initial experience’. The use of the word ‘initial’ implies that the new workers, having got that experience, will move to better paid jobs.

The same sort of argument – that a high wage stops unskilled people from getting into the workforce – is the same rationale for low youth wages. That’s why, in the lead up to the 1993 election, the coalition’s policy proposed youth wages of $3 per hour – very low wages, even then. At the time, Prof John Buchanan wrote, of Fightback’s move to lower-paid jobs through decentralised wage-fixing:

 “Segmented labour markets are often characterised by significant differences in earnings. Low wages are often associated with low skill jobs. A vicious cycle can develop where low wages subsidise inefficient, low productivity jobs giving management no incentive to increase competition on the basis of quality and overall firm level productivity. Some of the most troubling analysis of the UK experience indicates that this could one of the lasting legacies of the Conservatives’ rule (Brosnan and Wilkinson, 1989). It has also been noted that, generally speaking, the greater the degree of decentralisation in a wages system the higher the level of wage dispersion (Rowthorn, 1990). Further decentralisation engineered by the Coalition could in fact nurture a low productivity sector.”

In Britain, a national minimum wage was introduced in 1999.

According to a paper by David Metcalf of the London School of Economics and Political Science’s centre for economic performance, the introduction of the minimum wage raised the real and relative pay of low wage workers and narrowed the gender pay gap. And in a 2011 report to the British Low Pay Commission, Rizov and Croucher find that productivity has been positively affected by the introduction of the minimum wage. That means that increasing the pay for low wage workers, and narrowing the gender gap, seems to have led to productivity increases.

Metcalf was of the view that introducing the national minimum wage had had little or no effect on employment. That being the case, it’s hard to believe that lowering the pay for the lowest-paid workers is the best strategy for improving workforce participation.

Perhaps predictably, on that front, I much prefer the BCA document’s recommendations in relation to childcare. Though I don’t agree with parts of the recommendations, I do think there’s something to be said for these:

 “Consideration should be given to the combined impact of income support, family assistance and personal income tax on decisions to re-enter or increase hours of work, recognising that many primary carers are relatively responsive to financial disincentives.

Consideration should also be given to the impact of rebalancing family assistance in favour of greater childcare subsidies that specifically support work, study and training and less untied cash payments in the form of family payments.”