28 January 2007

Working conditions

I have never understood this Rain Man-style focus at Catallaxy and elsewhere on the minimum wage at the expense of wider issues in the labour market. Abolishing the minimum wage creates more trouble than it’s worth and does not address labour shortages. I’ve posted there on this before and experienced the feeble flailings against blasphemers, so I’ll try posting here.

There is nothing quick or clean about reducing the minimum wage. A government committed to doing so would be unable to do anything else, and such a policy would be rapidly undone by the next government. Not only is it too hard politically, it isn’t worth it.

The reality is that in Australia today, you can’t get by on $2/hour. No-one can, and it’s not worth creating a job returning such a rate for its holder. One of the silliest features of the modern Australian workforce is illegal immigrants working at such a rate to make low-value clothing, with management fearful of government penalties: why managers don’t simply set up operations in a country where $2/hour is a living wage, attracting a broader and better slice of the workforce with the encouragement of authorities, who can create the sort of economic opportunities in those countries where their absence forces people to emigrate.

Show me a person whose contribution to a business is so low that it is only worth paying them $100 a week (before tax) for 50 hours’ work, and I’ll show you someone who’s not worth employing.

Many commentators tend to regard the creation of below-minimum wages as taking the unemployed off the streets, but there are too few unemployed for this policy to be worthwhile. There are bigger fish to fry on labour market policy. Besides, why should the unemployed take a job which costs them to perform?

The northern suburbs of Sydney is home to some of the nation’s wealthiest people. These communities experience shortages of schoolteachers, nurses and council workers, because the costs of living in or near this area is higher than wages will allow. Once you recognise these high and rising costs, a focus on minimum wages starts to look inadequate in facing the problems facing this country’s workforce. Neither the current government, nor a future government serious about addressing the problems of the economy, need pay any heed to minimum wages being too high.

Australia has a small workforce and a population with a high standard of living, one that seeks to maintain and improve that standard for those who do not labour: old people, children, and those who are not capable of labour. I accept that welfare payments are sins against economic orthodoxy, but the general principle of high and improving standards of living is sound and one against which economic policies should be judged.

The creation of low-value jobs will not help realise this aim. Policy should not encourage the creation of low-value jobs, it should encourage the creation of jobs which return sustainably high wages to employees (yes, I meant sustainably high) and high flow-on effects to the economy generally. Skill training and education are more important than allowing unsustainable jobs.

It is in high-value work that the Australian economy is suffering its greatest shortages. Almost all skilled trades and even professions such as IT programming are trying to fill shortages through immigration, and largely failing, as the principle of expecting people to be highly-trained in an economy depleted of training has also failed. Scrapping minimum wages will not alleviate these shortages. It does not even address these shortages. These shortages are much more important issues than minimum wage levels. Sound policy and limited resources would therefore be better targetted at addressing skill shortages than at addressing minimum wage levels.

The reason why nobody wants to program computers or unblock drains or cut hair isn’t because people dislike working hard. The reason is because wage levels in these are as are too low already. It is a fantasy that removing minima will allow wages to soar to meet unmet demand.

There is a large number of workers in Australia who are highly-skilled yet unemployed, and who often don’t show up on unemployment statistics. These people have responsibilities to care for children or older people. People also have responsibilities to their employers, and most employees can and do combine these effectively, but where they clash carers’ responsibilities override those to employers. A complex tangle of regulations and market forces makes it uneconomical for these people to (re-)enter the workforce - once you recognise that, turning away to focus on minimum wages starts to look like shirking the real issues and onsessing about an issue that doesn’t really matter.

In a low-unemployment economy, the numbers of skilled people excluded from the workforce in this manner is more significant than the small and diminishing cohort of can’t-work-won’t-work welfare-bludger stereotypes. Removing minimum wages won’t enable these willing workers to make a greater economic contribution than they already are. For the workforce to access the skills of the former group requires wide-ranging and detailed reforms to taxation and welfare systems, with the promise of a significant payoff for the economy generally.

Removing minimum wages misses the point.

1 comment:

  1. Graham Bell3/2/07 8:15 am

    Excellent post.

    You got right to the heart of the problem .... and pointed the way to solve it.

    Trouble is, although your post is full of commonsense and keen observation and wisdom .... you are up against a mob of fanatics who have abandoned reality and are hell-bent on driving Australia into the abyss of their own political and economic hallucinations.

    Theirs is a mass delusion - just like the Peasants' Crusade or the Witch Burnings or the Tulip Mania or the Cultural Revolution - and nothing will ever shake these fools out of their false beliefs and crazy, ruinous practices.

    The situation is bad but not hopeless .... so long as people like you continue to speak out against this sort of political and economic cult lunacy.