Canberra uni professor Ian McAuley says a higher minimum wage encourages business to become more productive.
Photo: Andrew Meares
When the Fair Work Commission approved a rise in the national minimum wage this week, the reaction from the business sector was muted, however one academic has made the case for how a pay bump can boost productivity.
The Australian Chamber of Commerce and Industry lambasted the ruling, describing it as a “body blow” to tens of thousands of small business employers. But most businessmen were philosophical about it or pointed to inflexible penalty rates as the real problem. Retail king and BRW Rich Lister Gerry Harvey even conceded that people would have more money to spend in his stores.
The wage increase bumps up the national minimum wage by $15.80 a week to $622.20 a week. Unions had sought a $30 per week increase, while business groups argued for no more than $5.80.
On Wednesday New Matilda published an interesting economic perspective on the issue, written by Ian McAuley, an adjunct lecturer in public sector finance at the University of Canberra and a fellow at the Centre for Policy Development.
“To put it simply, if a business has to pay a reasonable minimum wage, there is an incentive to ensure that people are employed productively. Any Australian visiting the USA, where federal minimum wages are $US7.25 an hour compared with our $A16.37, cannot help noticing how many people are employed in jobs such as parking attendants, domestic servants and supermarket bag packers – ‘dead-end jobs’, to use John Howard’s term.
“In other words, a high minimum wage is a spur to productivity. It carries a financial incentive for efficient work practices, and encourages the use of labour-saving technology. In fact our high exchange rate, while obviously hurting in terms of price competitiveness, should provide an excellent opportunity for businesses to import labour-saving machinery.”
He goes on to support his argument with evidence from the past decade and a half:
“In the static world of basic economics textbooks, high wages and substitution of capital for labour may result in some loss of employment opportunities, but in the more complex world of dynamic systems higher productivity means higher incomes and more employment all around — and that’s just what’s been happening in the Australian economy.
“Over the last 15 years the number of people employed in high-skill occupations (ABS classifications: ‘managers’, ‘professionals’, ‘technical and trade workers’ and ‘community and personal service workers’) has grown by 2.3 million or 52 per cent, while the number of people in lesser-skill occupations (‘clerical and administrative workers’, ‘sales workers’, ‘machinery operators and drivers’ and ‘labourers’) has risen by only 0.8 million or 20 per cent. The workforce is changing, a point clearly acknowledged by the commission, when it observed that the proportion of workers described as “award reliant” has fallen from 23 per cent to 16 per cent since 2000, and that non-award incomes were running well ahead of award incomes.”
He also argues that a high minimum wage reduces inequality in the workforce and reduces welfare dependence.
Agree or disagree, it is an interesting economic argument and worth reading the article in full. Please comment below if you have invested in productivity measures because of high wage costs.