Excerpts from an article discussing the effect of wage increases. Inflation is a casualty but the argument against wage increases is somewhat more complicated than the simplification of cause and effect.
https://www.msn.com/en-au/news/australia/how-does-albaneses-wages-plan-impact-jobs-inflation-and-poverty-we-ran-the-numbers/ar-AAX8HZW?li=AAgfYrC
Anthony Albanese wants a 5.1% lift in the minimum wage — but how would that affect the economy?Looking at jobs, inflation and poverty, uncertainty and paradoxes mean there are arguments a motivated person could use for or against.
Effect on jobs
Economics 101 says higher minimum wages will make businesses employ fewer people. The problem in Australia is not enough people have taken economics 201, which says that economics 101 is an oversimplification.
Its logic, though, is appealing: higher labour costs mean firms hire fewer staff. But economics aspires to be a science rather than a system of belief, and the evidence points in the opposite direction to the logic. This evidence is both global and local, industry-wide and industry-specific. It finds no good evidence that higher minimum wages destroy jobs.
For example, what happened to jobs when Sunday trading penalty rates disappeared? The answer is: employment didn’t improve.
“We demonstrate conclusively that the phasing in of wage premium (penalty rate) reductions from 2017 did not impact positively on employment in retail and hospitality sectors,” employment and economic experts Ray Markey and Martin O’Brien wrote in The Sydney Morning Herald last year.
But that’s just one change in one industry. The best work on minimum wages in Australia was done in 2018 by a young man who is now the head of the Reserve Bank’s economics research department, James Bishop. He ran a lot of heavy maths on the history of Fair Work Commission wage increases, and found “that award changes are almost fully passed through to wages, and have no statistically significant effect on hours worked or the job destruction rate”. ...
...Which leads us to inflation.
Higher wages have to come from somewhere. For businesses, they need to fund those wage increases by reducing profits or charging higher prices. Profits are good right now, but some increase in prices is likely. The UK finds that prices go up more in months where the minimum wages increases, by 0.08 percentage points.
So what’s the job of the Fair work Commission: to control inflation or raise wages? What matters most? There’s no evidence that raising wages will hurt employment. Is that its priority?
It is not the only policy priority at the moment. We’re in an inflation spiral that the RBA is suddenly working very hard to control. The paradox here is that wage rises both contribute to price inflation and help compensate working households for inflation.
Is it better to have inflation that lasts longer but cuts less deep for wage earners? If you’re a wage earner you probably have a different answer than if you’re on a fixed-payment pension.
Or is it better to have inflation that is briefer, but cuts the buying power of wage earners?
The answer is not given to us by economics; these are questions of values and priorities. It’s great news that Albanese has taken a position on the topic in an election campaign because it lets us use the election campaign to vote for our priorities and values.
