Thursday, July 19, 2012

Minimum Wages Research In Australia: 2006-2012

Over the past six years there has been a substantial amount of research relating to minimum wages in Australia. This started with the Australian Fair Pay Commission—the body established by the “Work Choices” legislation to set minimum wage rates—and continued when those wage-setting powers were transferred to Fair Work Australia in 2009. I worked for the AFPC from 2006 to 2009 and FWA from 2009 to 2012, and was involved in producing at least some of that research (as you can see from my name on the cover of some of the reports!) To mark the end of my involvement in minimum wage research, I thought I’d post a list of the research that I personally found the most interesting over that period, and which in my opinion is worth checking out (at least the abstracts) if you have an interest in the subject.  

The first articles I’d recommend are not about minimum wages in Australia at all, but in a lot of respects they crystallise the main debates around the role of minimum wages. At the AFPC’s Minimum Wage Research Forum in 2008, the two keynote speakers were Stephen Machin from the UK, and Richard Burkhauser from the US.

Professor Machin talked about the UK experience following the introduction of a National Minimum Wage in 1997, and how the setting of minimum wages had been very much an “evidence-based” process; that is, by conducting research into the economic effects of minimum wages in the UK. Professor Machin claimed that (at that time) there had been little evidence of negative effects of minimum wages on employment and hours, and that minimum wages can raise the wages and welfare of working families.

By contrast, Professor Burkhauser claimed that the negative effects of minimum wages on employment outweigh the movement out of poverty by those workers who are helped by the policy. Professor Burkhauser argued that instead an Earned Income Tax Credit is a far more effective way of ensuring those who work are not poor (an EITC is a tax refund for lower-income households: have a look on Wikipedia if you’re interested in the details).

Another interesting article from that Forum was Ian McDonald’s “macroeconomic perspective” on the setting of minimum wages. He argued that minimum wages in Australia should be adjusted by 4 per cent a year—2.5 per cent to account for changes in prices and 1.5 per cent for changes in productivity. Some might find this view unusual, but it’s worth a read to see how Professor McDonald backs up his proposal.

Of the non-Forum papers NATSEM’s report on the interactions between wages and the tax-transfer system shows what would happen to the incomes of a range of low-wage households if minimum wages were raised, given that those households would face higher tax payments and reduced government transfers. It’s a bit out of date now (it was published in 2006), but it gives some indication of how much of a minimum wage increase households are really getting in their pockets.

I found Downes’ and Hanslow’s 2009 report interesting, if only because it’s been the only research commissioned by either the AFPC or FWA to model the macroeconomic impacts of increasing minimum wages. Of course all economic modelling faces limitations, and this is no exception, but it’s worth a look if you’re interested in models (and who isn’t?)

Also from that year I was quite interested in Hahn's and Wilkins’ report on the living standards of low-paid workers. They took a multidimensional approach to measuring living standards; so a person could be considered to have low living standards if they have low income and low wealth, or low income and low consumption, or maybe all of the above. It’s interesting to see how the incidence of low living standards amongst low-paid workers changes as the definition of “low living standards” changes.

From the FWA era, a report I read a number of times was Jocelyn Pech’s report on various ways of defining and measuring the relative living standards and needs of low-paid workers. How does one determine how well-off low-paid workers are? Well, there’s been a number of ways that this has been done by Australian researchers: this report canvasses their approaches.

And of course you should read all of my research! OK, maybe not, but an article that I quite like is the one I did on labour market outcomes for low-skilled people in Australia (it’s the final article in the report). It brought together a number of ideas that had been circulating around my head about what the data relating to low-skilled employment can tell us. Also, I’d recommend the report I did with Tom Bolton on the distribution of earnings for employees earning minimum wages – like Blur’s “Song 2” it seems to have had a lot of legs for something that was knocked out pretty quickly.   

It would be remiss of me to write about Australian minimum wage research over the past few years without mentioning Dr Josh Healy’s mammoth work on the wages safety net of the Australian Industrial Relations Commission from 1993 to 2005. It takes a look at how minimum wages were decided over this period, and the implications of those decisions. More recently, Wilkins and Wooden examined minimum wage/award reliance as measured by the HILDA survey. The inclusion of an “award reliance” variable in the HILDA survey is potentially an exciting development for minimum wage research in Australia, because the HILDA survey has a large number of variables that can be cross-tabbed, and employees are tracked over time.  

Of course, there are many more research reports to explore on the FWA website if you’re interested. And for those who just come here for the AFL Power Rankings, they’ll be back on Sunday.

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