The minimum wage rise con and the failure of our right
Joe Cambria
The Australian Industrial Relations Commission (AIRC) has just raised the minimum wage. The economic view that minimum wage rates raise unemployment was slyly acknowledged by AIRC president Geoffrey Giudice when he said that the commissioners had adopted approach that they believed would minimise the effect of their decision on employment levels.
What really matters is the effective wage rate. If the rate is set above the market rate unemployment will rise. So how do we know if the rate being set will be effective or not? Well, economics tells us that if a good is over priced there will be a surplus. Our high level of unemployment means that overpricing labour services has created a labour surplus. To raise minimum wage rates in these circumstances would be considered by some to be criminal.
This is not airy-fairy theorising. If it were, what is to stop the commission from doubling or even tripling the minimum wage? Common sense, for one. The commission evidently knows that there is a relationship between long-term involuntary unemployment and labour costs.
The following tables were compiled by Professor Benham in the late 1920s and clearly indicate the connection between excessive wage rates, output and unemployment. (Why our free market establishment refuses to use these figures baffles me. Perhaps the President of the H. R. Nicholls Society will care to enlighten me).
According to Professor F. C. Benham "It would be hard to find a clearer proof of our thesis [that excessive wage rates cause unemployment]." Benham drew attention to the fact that unemployment rose as wage rates rose "relatively to the value produced per worker…" Table 2 shows the correlation between wages and the annual value of output per employee, making clear the connection between excessive wage rates and the level of unemployment.
Now Justice Giudice said that the wage fixing system was an "imperfect and partial mechanism for addressing the needs of the low-paid" and expressed the view that "the tax-transfer system can provide more targeted assistance".
The point is not that the system is "imperfect and partial" but that it is destructive. I for one cannot see any justice in pricing some people out of work in order to raise wages of who are fortunate enough to keep their jobs. This is the dark and least discussed side of our wage fixing arrangements and one the Professor Benham exposed ore than 70 years ago.
Justice Giudice is not the only one who believes that using the tax system is better way of raising take home pay. I agree to a limited degree. But instead of taking from one to give to the other, how about letting the low–paid keep more of what they earn?
I doubt if Mr Costello would agree with my proposal. But considering how disconnected he and his Melbourne friends and advisors are from the worries that plague the poor, I suggest that the less he says on the matter the better. I have always thought that those who are all too ready to tell the poor to tighten their belts have rarely, if ever, tightened their own.
Brookes, unlike Melbourne's professed free marketeers, always tries to stress that the only way by which real wages can be raised for everyone is through increased capital accumulation. In other words, economic growth.
Unfortunately the public is largely ignorant of the forces that bring about rising living standards, which means increased real wages. And that is why it supports commission's job-destroying activities.
This brings me to a final observation. Did anyone notice the irony of the minimum wage decision being made in the same week that the H. R. Nichols Society held its annual conference?
That the two events coincided only emphasises the failure of our free marketeers to persuade the public of the economic and social benefits of free labour markets. Perhaps failure is too charitable a word. From what I have heard in the city our free marketeers are not even trying to make the slightest effort to get the public onside.
In this month's issue of Quadrant Ray Evans expressed the view that the IPCC "now has all the features of a well-defended fortress". May I humbly suggest that the same can honestly be said of the H. R. Nichols Society's Central Committee, of which Mr Evans is president. It seems to me that the HRNS is more focused on gaining the attention of those it thinks have money, status or influence rather than in defending the free market.
A reader recently called me to account for not giving the right its due. The following is part of my reply:
I shall have no respect for it [the right] till it does the right thing by those who are not in the club but nevertheless have done much at their own expense to promote the cause of freedom. Until that happy day arrives, if ever, I presume our right will continue snubbing those it considers to be outsiders while trying to curry favour with well-known columnists like Tim Blair and Andrew Bolt.
Joe Cambria was a Wall Street Trader for 15 years. He returned to Australia last year. He can be emailed at
joecambria@msn.com
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