Fair pay?
Yesterday the new Fair Pay Commission, in its first decision, put up the minimum wage by $27.36 a week, just short of the $30 the ACTU wanted.
This has been widely hailed as a vindication of the old Australian Industrial Relations Commission’s acceptance that high minimum wages support the lowest paid workers in our society. The Prime Minister and Treasurer have already started singing about how this shows the independence of the new FPC, and how all those lefty unionists out there have nothing to fear of WorkChoices.
However, the whole thing smacks of opportunist, cynical politics. What sort of politician would be crazy enough, having just implemented controversial new industrial relations laws, to put serious pressure on minimum wage rises with only a year to go until the Federal election?
In one fell swoop, the supposedly “independent” FPC has taken the wind out of Labor’s and the union movement’s claims that the government just doesn’t care about the lowest paid, most dispensable workers.
By granting a substantial pay rise, the government starts to look a lot better to all those voters sceptical of WorkChoices. They can also claim the FPC is now independent and beyond their control - until after the election, that is.
This irony would almost be delicious were it not so economically serious. As The Australian’s editorial (and many other commentators) argue, setting minimum wages just isn’t good macroeconomic policy. It distorts labour markets and makes it harder for businesses to operate efficiently and flexibly.
It also has a range of other drawbacks: some workers can’t get jobs even when employers want to hire them, because wages are too high (ie, unemployment is kept higher than it needs be), large employers find it easier to adapt to globalisation by shifting some jobs offshore rather than changing lower-end employment mixes here, and (arguably) it puts pressure on other wages to rise, impacting inflation.
There’s also disincentive effects for workers. The longer they’re kept out of work - even if it’s low paying - the more dishevelled the long-term unemployed become, and the bigger the skill losses.
More broadly, it’s poor welfare policy. Why increase the after-tax incomes to a few workers whilst also distorting their incentives with high effective marginal tax rates and increasing structural employment every time the real minimum wage rises?
Surely it is far better to change the tax/welfare systems to benefit everyone. Minimum wages should be lowered, not raised. At the same time, welfare payments for the lowest paid should ensure no-one goes hungry. There’s nothing wrong with setting minimum incomes, but this is a job for the government, not something that should be forced on employers.
Indeed, there’s also a strong case to flatten tax rates and increase the low-income tax threshold to reduce the absurd amount of ‘churn’ going on in our economy. When it comes to taxes, welfare and wage intervention, the motto should be: simple but fair.