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Let the people work

By David Leyonhjelm - posted Friday, 13 December 2013

Thousands of Australians would love to have paid work. They include those just out of school, just out of jail, age and disability support pensioners, sole parents and refugees.

Thousands of Australian businesses would be willing to take a chance on these job seekers and pay them more than the $5 to $10 an hour they currently receive on welfare.

But they are forbidden from doing so. It is against the law to offer or accept any such arrangement. To take on a new starter and pay them even double their welfare payment is illegal. No matter how poor their resume or how willing they are to work for rates of pay and/or terms and conditions that suit them and their families, they can only be employed if they are paid the minimum wage, notionally about $16.40 an hour but over $20 an hour for some casuals.


Such bans on low paid work create unemployment. Before he entered Parliament and became Labor's Shadow Assistant Treasurer, Dr Andrew Leigh was a professor specialising in labour economics. He found that reducing the minimum wage in Western Australia by ten percent would increase employment by around three percent within three months.

Over a longer period, the employment gains would expand. And a reduction in the federal minimum wage would have an even greater employment impact, as the WA minimum wage in Leigh's study covered very few workplaces.

In a separate study Dr Leigh found that most of the people on the minimum wage are in middle income households. By contrast, low income households are typically in that position due to unemployment. Abolishing the minimum wage, by creating employment, would help them the most.

Other studies have shown that most people on low wages move on to higher wages after about a year. This shows that low wage jobs are an opportunity for people to start at a bottom rung and work up. The problem is, Australia's regulated minimum wage is so high that many cannot even reach the bottom rung and begin to climb.

In fact, Australia's minimum wage is one of the highest in the world. Australians start paying income tax once their annual income exceeds $18,200, but they are not allowed to get a full time job unless it pays more than $32,000 a year. In the OECD, only Luxembourg and France have a higher minimum wage.

The minimum wage in both New Zealand and the UK is 84 per cent of ours; Canada's is 78 per cent, Japan's 58 per cent and South Korea's 42 per cent. Other countries with which we might compare ourselves, including Austria, Germany, Finland, Sweden, Switzerland, Italy and Singapore, have no minimum wage at all.


Despite the weight of evidence, Dr Leigh has an uphill battle to convince his colleagues of the futility of minimum wages. While in office Labor was proud of its disability policy but struggled to see that the minimum wage was a key impediment to a better life for many disabled Australians.

The Greens similarly take pride in their advocacy for refugees and opposition to the recent reduction in sole parent payments, but cannot see that a truly caring policy for both refugees and sole parents would be to allow those who want to enter the workplace to do so. The high unemployment rate for refugees is staggering and raises concerns for the future.

The Coalition faces a similar dilemma. The Employment Minister, Senator Eric Abetz, is from Tasmania, where unemployment is persistently higher than the rest of Australia and youth unemployment is over 40% in some areas. Even though living costs are markedly lower there, the minimum wage is the same nationally. It is this fact that drives such a sorry statistic.

Australia's minimum wage runs counter to the Australian credo of giving everyone a fair go. It is time sensible voices in the Parliament agreed to help the underdog by removing the barriers that prevent them from getting a job and improving their lives.

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This article was first published in the Australian Financial Review.

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About the Author

David Leyonhjelm is a former Senator for the Liberal Democrats.

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