Sunday, February 9, 2014

Does Australia's minimum wage defy the laws of supply and demand?

Many leftists claim Australia has a $16 minimum wage with no adverse effects. 

1) Minimum wage laws have nothing to do with recessions

2) Australia has the 3rd highest cost of living in the entire world.

3) This assertion relies on nominal exchange rates rather than the more accurate Real Exchange rate (which is adjusted for inflation).

When using the real exchange rate, the Australian minimum wage is:

$10.22 per hour for people age over 20 years old

$7.14 for people who are 18 years old (lower than US minimum wage)

$3.85 for people who are 16 years old or younger

4) They vast majority of workers make more than the minimum wage and thus the overall unemployment rate is irrelevant.  Instead we should focus on the unemployment rate in the demographics most likely affected by minimum wage increases (low-skilled, poor, and young workers).

5) Youth unemployment climbed to 17.3 per cent, its highest level since October 2010. That's pretty bad for a country that supposedly escaped recession. (3)

The workforce participation rate, which measures the number of people working or looking work, fell by 0.1 per cent to a near seven-year low of 65 per cent (in September 2013). Basically, just like in the USA, many people have stopped looking for work and dropped out of the workforce.

6)A private organization, Roy Morgan Research, found that Australia’s unemployment rate is closer to 10.4%. A survey found that the majority of Australian’s believes Roy Morgan’s methodology and unemployment rate is more accurate than the Government’s statistics. This isn’t necessarily related to minimum wage laws (2).

Roy Morgan counts someone as unemployed if they aren’t working but looking for work.

Australian Bureau of Statistics measured the unemployment at around 5.6% and counted someone as unemployed if, when surveyed, they have been actively looking for work in the four weeks up to the end of the reference week and if they were available for work in the reference week.

7. Past studies of minimum wage increases in Australia have shown they lead to disemployment. One Harvard University study found that "that for each 1 percent increase in the minimum wage we can expect... [to lose] 96,000 jobs" in Australia". (4)


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