Our high minimum wages stops low-skill workers getting jobs

Our high minimum wages stops low-skill workers getting jobs

Our high minimum wages stops low-skill workers getting jobs

April 26, 2017

There are around 524,000 Australians currently looking for full-time jobs, plus a further 224,000 looking for part-time work.

As many of these people know only too well, the unemployment benefit for those over 22 is $535.60 a fortnight for singles and $483.60 for those “partnered”. For those under 18 and living with their parents, the benefit is $239.50 a fortnight.

The only obligation on those receiving this money is to look for a job. But if the money was actually payment for working a 38-hour week, it would equate to an hourly rate of $7.05, $6.36 and $3.15 respectively.

If the people receiving these benefits were to be offered double these amounts, on condition they work for it, a good number would accept. To many people, such a boost in income would be pretty attractive and work is no deterrent. To those barely scraping by, it would be especially appealing.

However, if they were to accept a job on that basis, all hell would break loose. Their employer would be vilified, prosecuted and fined for “exploiting” them, and in due course they would receive additional money to compensate for their exploitation. Needless to say, no other employer would make a similar offer.

Simply put, you can be paid a fairly miserable amount for doing nothing, but you cannot be paid more than double that for doing something. If that sounds stupid, it’s because it is.

Australia has one of the highest minimum wages in the world. Australians are not allowed to take a full-time job unless it pays at least $17.70 per hour or $672.70 per 38-hour week (before tax). Casual employees covered by the national minimum wage also get at least a 25 per cent casual loading. If they are asked to work on a Sunday where the award imposes a penalty rate of 175 per cent, it could be more like $31 an hour.

Among the thousands of Australians who would love to have paid work are many of our most vulnerable socioeconomic groups; those just out of school, just out of jail, age and disability support pensioners, former carers, sole parents and refugees.

Without question, the most constructive means of lifting these and others out of poverty is to assist them to join the workforce.

On the other side of the ledger are thousands of Australian businesses that would be willing to take on these job seekers and pay them more than they currently receive on welfare, but not as much as the law demands. Yet no matter how poor their resume or how willing they are to work, they can only be employed if they are paid what the law demands.

Howls of outrage

When the Fair Work Commission recently ruled that certain penalty rates for Sundays were to be reduced, the howls of outrage only related to those who had a job. Nobody seemed to care about those who might get one as a result of the changes. It is much the same with the minimum wage.

The simple reality is that mandatory wage rates lead to unemployment. It is also true that reducing the minimum wage creates more jobs; this is shown by empirical evidence and also makes sense from first principles. For every business there is a point at which the cost of hiring additional people can be recouped through additional sales and profits.

It is not at all clear why we even need a minimum wage. A number of countries, including Austria, Finland, Sweden, Switzerland, Italy and Singapore, have no minimum wage. In the OECD, only Luxembourg and France have a higher minimum wage than Australia.

Far too many Australians are unable to reach the bottom rung of the job ladder and lift themselves out of poverty. We impose a bar on many needy and vulnerable people that is just too high for them to clear.

The Australian credo of giving everyone a fair go might apply to those who have a job, but it certainly isn’t being applied to those who don’t. Those who most need a job are blocked because of claims that those with a job are more important.

It is time for sensible voices to help the underdog by removing the barriers that prevent them from getting a job and improving their lives.

David Leyonhjelm is a Senator for the Liberal Democrats

AFR Contributor

Originally published at www.afr.com on April 20, 2017.