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Lowering the Minimum Wage? What a Terrible Idea

The Guardian, November 12, 2013

 By Sadhbh Walshe

As someone who lives in America, every time I come in contact with Australia I get the feeling that we live in an upside down world. Your night time is our morning, our summer is your winter and while we’re firmly stuck in today, you’re already doing tomorrow (or is it the other way around)? Anyway, you get the drift, Australia is the Ginger Rogers to America’s Fred Astaire. I suppose it’s fitting then with the countries’ penchant for doing things in reverse, that just as America finds itself in the throes of a quasi-revolution to raise the minimum wage, some Australians are mounting a push to lower theirs.

Speaking at a business dinner in Sydney recently, the chairman of the prime minister’s Business Advisory Council, Maurice Newman, bemoaned the fact that Australia’s minimum wage is so much higher than in other countries, particularly the United States. In US dollars the minimum wage for a 38 hour week in Australia comes to $33,355 per year compared to a measly $15,080 yearly for an American worker. Newman felt it was his “civic duty” to point out that Australian wage rates “are very high by international standards” and he’d like to see them move in a southerly direction.

Before this movement takes flight, however, let me fill you in on how the low-as-you-can-go wage model is working out for Americans.

For the past year or so in America, minimum wage workers have been walking off the job and marching through the streets demanding a higher pay rate for the simple yet compelling reason that theirs is not a livable one. One of the slogans of choice– “We cannot survive on seven twenty five” – is a direct reference to the federal minimum wage of $7.25 an hour. Although in nominal terms this figure has increased over the past few decades (it was $4.25 in 1991), after adjusting for inflation, the minimum wage is approximately $3.30 less in real terms than it was in 1968. As it happens no one disagrees anymore that $7.25 an hour is not a living wage but opponents of a minimum wage increase continue to arrive at the same illogical conclusion that American workers would be worse off if they were paid more.

It comes down to the same argument that Newman is trying to make in reverse in Australia, that a higher minimum wage leads to a less competitive economy and higher unemployment. The fact that Australia (with its higher wage rate) has a 5.7% unemployment rate compared to 7.3% in the US does not advance Newman’s cause. Several studies have also shown that minimum wage laws have no effect on employment and some studies have even found a wage hike to have a small positive effect. The belief persists, however, that raising wages will have dire consequences for the economy and so American workers who can’t make ends meet on their minimum wage salaries are told to just suck it up and get a second or third job as necessary.

This formula works out great for giant corporations like Walmart and the big players in the fast food industry who are recording record profits while paying their workers wages so low that they can’t afford rent or food. It’s not such a picnic for the worker, however, who ends up trapped in a cycle of poverty (you can’t really expect a person who is working 2 or 3 minimum wage jobs to find the time or money to do an advanced degree on the side).

Society pays a price too, because when millions of workers can’t get by on their salaries, they have to rely on public assistance programs to make up the difference. A recent joint study by UC Berkeley Labor Center and the University of Illinois found that 52% of the families of front line fast food workers in America are enrolled in one or more public assistance program costing the taxpayer nearly $7bn per year. Similarly a study released in May of this year found that every Walmart store costs the taxpayer between $900,000 and $1.75m per year in government funded wage subsidies.

If this is the kind of "competitive" economy that Australians are looking for, where big business gets to literally feed off the fat of the land while their workers go hungry, then by all means go for it. Just be aware that it comes with a hefty price tag, one that the workers – and not just the poorest workers – will end up paying.

 

Original Article

 

 
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