Friday, December 20, 2013

Some Quick Further Thoughts On Minimum Wages Policy Before Christmas

Today the Fair Work Commission released two research reports authored by the Workplace Research Centre – one with the rather broad heading of ‘Award reliance’, and the other on the more specific topic of ‘Minimum wages and their role in the process and incentives to bargain’.  In the latter report, the WRC made the interesting finding that Australian employers and employees generally reported that increases to minimum/award rates of pay through the annual wage review neither encouraged nor discouraged enterprise bargaining at the workplace level.

I must admit I haven’t read the whole thing, so I don’t know how well their evidence stacks up. But assuming it does, it seems like on the surface a further ‘nail in the coffin’ for dollar increases to minimum wages for the short-term at least. One of the arguments used to justify dollar increases was that it resulted in higher percentage increases to workers on the lower award rates of pay, and lessened the financial disincentives for workers on the higher award rates of pay to bargain. If minimum wage increases don’t really affect bargaining much at all, then this argument has less potency. (Although the finding seems to be primarily based on interviews at only 20 workplaces so we shouldn’t get too carried away here.)  And in its most recent decision, the Fair Work Commission seemed even less prepared to revisit the possibility of dollar increases than I thought it might be.

Personally though, while I’m hardly going to go on a crusade about it or anything, I’ve gradually decided I’m in favour of percentage increases. Dollar increases, particularly when maintained over a couple of decades, seem like a rather passive-aggressive way of reducing the relevance of award rates of pay. Either we as a society want a minimum wage premium for skill, and we should keep the various minimum pay rates for different skill levels, or we just want an overall minimum wage (like the US and the UK) and we don’t. (Yeah, yeah, I know politically it’s not that simple …) And if we’re going down the first route, what’s the justification for letting the wage premium for skill deteriorate over time? I think there’s a case, which I’ve kind of argued before, for increasing all the award rates by an amount that is more or less equal to average wage growth each year, assuming you have the levels about right. Even if there was just one standard adult minimum rate of pay – which I think is very unlikely to happen in any case – I’d make much the same argument.

If you’ve got this far, thanks for reading my pontificating. Have a good Christmas folks!

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