February 1, 2010 1:00pm by David Farrar

ODT on minimum wage

The cry from unions and the Opposition parties, without the responsibility of Government, has been to raise the minimum to $15 an hour.

But why $15? Why not $20 or more?

Obviously, much, much higher minimum wages are totally unrealistic and would wreck the economy.

The same principles apply to $15 even if the impact is not as severe.

And what is depressing is the economic illiteracy where the left have convinced themselves that one can close the wage gap with Australia by legislating for higher wages. That’s like thinking one can legislate the Easter Bunny.

The way to raise wages, is through increased productivity. And the best way to earn more than $12.75 an our is to gain skills and experience. Very very few people spend their life earning the minimum wage.

Struggling businesses, and many are still on the brink, would have to employ fewer people, more firms would go bankrupt, costs for goods and services would rise (including for beneficiaries and the poor) and, in the long run, the most vulnerable groups and those without jobs would be the worst affected.

With the abolition of the youth minimum wage, they would be most affected, as $15 an hour would price many of them off the market and deny them the opportunity to gain work experience.

About 100,000 people are directly affected by the minimum wage increase, and relativities flow from these.

Margins for responsibility, seniority and skills will be squeezed, hence one reason for the vociferousness of various unions.

They will, naturally, look for increases to preserve margins.

A move to $15 would have significant flow on effects, and would be inflationary. This means interest rates go up, and again fewer people in employment and lower economic growth.

From an economic point of view, the minimum wage has risen more than enough over the past decade, with detrimental impacts so far cushioned by growth and relatively low unemployment.

The Government, in the current climate, has taken a cautious, sensible and pragmatic approach by withstanding pressure to hike the rate, while tweaking it in line with inflation.

And again the minimum wage is a minimum. Workers should not rely on increases in the minimum wage to increases their wages. They should gain experience, upskill etc so they do not remain in a minimum wage job all their lives. Most workers on the minimum wage do not stay there, I understand.