First, Labor leader Bill Shorten used last week’s The Australian Financial Review Business Summit to declare the coming election a referendum on wages and that his government would consider compelling the Fair Work Commission to institute a so-called living wage.
Now he has attacked anyone opposing a higher wage floor – proposed by the Sally McManus-led Australian Council of Trade Unions – as “fat cats” out of touch with ordinary workers. Notwithstanding the undergraduate sloganeering, this is not really about alleviating poverty: as the independent umpire established by the previous Labor government has warned, the sort of increase in the wage floor now demanded by the ACTU would seriously risk throwing unskilled and marginalised workers into poverty by pricing them out of work. But, then, organised labour cares more about employed labour market insiders than the jobless outsiders.
Rather than combating poverty, this is really about whether Australia should tackle “unfairness” through incentives and productivity or through more regulation and redistribution. In particular, it is about whether the wages system and the early 20th century notion of a “living wage” – rather than the tax and transfer system – is the best policy weapon against genuine disadvantage.
As the Financial Review reported on page one yesterday, the minimum wage is a blunt anti-poverty instrument if only because most minimum wage workers do not live in poor households. They are not the married man supporting a wife and three children depicted in the 1907 Harvester judgment that established Australia’s minimum wage. They are more likely to be a family’s secondary income earner, or a student living at home, on a working holiday job or helping out in the family’s small business. They are more likely to be found in the richest 20 per cent of households than in the poorest 20 per cent.
So most of any benefit from lifting the wage floor will not go to those in poor households. More importantly, however, most of the economic risk from a higher minimum wage would fall on the most marginalised and vulnerable. The ACTU and even Bill Shorten have run the line that lifting the minimum wage will boost the economy and jobs by putting more spending money in people’s pockets. If only such economic fakery was true. In reality, sharply pushing up wages without any accompanying productivity improvement will undermine the competitiveness of Australian business on global markets, hurting profits and costing jobs. That’s what Paul Keating accused the unions of doing in the previous resources boom of the late 1970s that collapsed into the double-digit jobless rate of the early 1980s. Unwinding this “real wage overhang” was what the Labor-ACTU accord explicitly aimed to do.
The ACTU’s proposal for an 11.5 per cent minimum wage increase over two years would entrench something like a French-style wage floor: close to $42,000 a year. That would make it more difficult for those on the margins of the workforce – the young, low-skilled and recent immigrants – to get a foothold into the job market. Artificially raising their price beyond their productivity will only encourage business to substitute them with labour-saving technology. Labor’s Fair Work Commission recognised this last year amid the ACTU’s claim for a 7.2 per cent increase, warning that it was “likely to run a substantial risk of adverse employment effects” that would “impact on those groups who are already marginalised in the labour market, with a corresponding impact on the vulnerability of households to poverty due to the loss of employment or hours”.
Rather than “relative poverty”, Australia should focus mostly on combating entrenched disadvantage. As Labor once recognised, a job is the best anti-poverty measure of all. Labor must not be allowed to condemn lower skilled workers, those from troubled backgrounds and migrants from less developed economies from being priced out of the opportunity of a stepping stone into the job market. Australia should not aspire to US-style regulated low wages. But nor should it approach the French cul-de-sac of high minimum wages and strict labour regulations that have marginalised generations of ghetto migrants.