Living wage ‘could push Australia into recession’

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A so-called living wage could push Australia into recession, according to the Institute of Public Affairs, which says Labor’s plans to lift the minimum wage further would threaten low-income workers’ jobs and drag Australia down key global competitiveness rankings.

The $18.93-an-hour minimum rate was already nearly double the OECD average and only slightly lower than in France and Luxembourg, according to a new IPA study that unfavourably compares wage regulation with Britain US, New Zealand and Canada.

“The proposed living wage is moving in the wrong direction. Rent control means people line up for housing. Price control means people line up for bread, and wage control means people line up at Centrelink,” said Kurt Wallace, the report’s author. “Without wage flexibility, employers and employees are not able to renegotiate wages in the event of an economic downturn. This can lead to recession, and widespread high unemployment.”

Opposition Leader Bill Shorten has argued the minimum wage, determined by the independent Fair Work Commission, is “too low”, declaring the May federal election a “referendum on wages” and promising to introduce a ­‘‘living wage’’ for at least 1.2 million or about one in 10 workers.

Over the decade to 2018, Australia dropped from ninth to 22nd on the World Economic Forum’s Global Competitiveness Index for labour market flexibility, which ranks 140 economies across a range of attributes. “Australia’s ranking in every constant component of the labour market ­efficiency measure has declined, at times substantially, over the past decade,” Mr Wallace said.

“Minimum wage effectively outlaws any job that pays below the price control. Individuals whose labour is worth less than the minimum wage will not receive a wage increase because of the minimum wage — they will lose their job,” he said, pointing to a youth unemployment or underemployment rate of more than 28 per cent.

Despite years of sluggish wage growth the overall jobless rate fell to 4.9 per cent in February, lower than Canada, but higher than 3.8 per cent in the US, 3.9 per cent in Britain and 4.3 per cent in New Zealand. “Taking leave into ­account, a full-time employee on the minimum wage is actually ­receiving $24.60 per actual hour worked (including superannuation),” said Mr Wallace, an IPA research fellow.

The study also takes aim at penalty rates for working Sunday, the highest in the world, and generous leave entitlements. “If a full-time worker who works standard hours takes all paid sick days, … he ends up working only 84 per cent of the time they are paid,” he said.

Mr Wallace’s study, which conceded lifting the minimum wage had produced “varying results in practice’’, follows the death last month of top US economist Alan Krueger, who showed in the 1990s how minimum-wage increases didn’t necessarily reduce employment.

Labor’s Andrew Leigh, a former economics professor, in 2003 found minimum-wage rises in Western Australia in the late 1990s reduced demand for workers by 0.13 per cent for every 1 per cent increase in the state minimum wage.

Originally published via The Australian.

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