The minimum wage deception
The other day, greatly to my surprise, I learned from one of my
students that Australia has the 'highest minimum wages in the world.' I
instantly demanded to know where he had obtained his information, and
discovered that he had derived his views from an article in the Sydney Daily Telegraph
that sounded very much like a precis of what the Australian federal
government is currently telling Australians by way of propaganda for
its hugely unpopular Industrial Relations reforms. Although I don't
know whether the federal government is actually making such claims,
many employer groups do seem to think that minimum wages here are much
too high. One writer for the Murdoch press, Mike Steketee, actually
claimed recently that 'minimum wages as a proportion of average incomes
are higher in Australia than in most other Western countries.' (SOURCE)
Whether or not the matter is directly relevant to the Howard
government's projected IR reforms, it is important to know how
Australia measures up in international perspective.
As it turns out, Australia has one of the highest minimum wage rates in the world - but only because many countries have minimum wage rates, and most of them are countries where wages are significantly lower than in Australia, while others are poor countries like Brazil where such laws are a dead letter. If we compare Australia with genuinely comparable countries - i.e., other OECD countries - the rates are only higher than those of the United States (where, according to one calculation, the minimum wage today is 35 percent lower than was earned by 'unskilled, non-union labor in the height of the Great Depression'), some Canadian provinces and New Zealand. In 2003, the minimum wage in Australia was 444 dollars a week or 1776 dollars a month. This was, using the May 2003 exchange rate, a sum equivalent to 993.6 Euros. In the EU alone, there were in 2003 six countries with a minimum monthly wage of more than 1000 Euros: Ireland, the UK, France, Belgium, the Netherlands and Luxembourg. (SOURCE - EUROSTAT PDF)
In addition, several other European countries that do not have statutory minimum wage rates have de facto minimum wage rates well above 1000 Euros per month. This includes Switzerland and all the Scandinavian countries. In the latter, de facto minimum wages are about twice those of the United States. As one commentator observed, 'The big difference between the Nordic countries and the U.S. is the wage spread. The main reason is that the lowest-paid workers in the U.S. have very low incomes, indeed. The minimum wage there is equivalent to NOK [Norwegian kroner] 45 per hour, and that is the actual wage for many millions of workers. The minimum wage in Norway is twice as much, NOK 90 per hour, and even that level is regarded by LO [i.e., the Norwegian Trade Union Association] as too low.' (SOURCE) In Sweden, the rate is reportedly somewhat higher: in Sweden 'the de facto minimum wage ... is more than twice the legal minimum wage in the United States.' (SOURCE) According to one source dating from May 2003, this is a sum equivalent to 930 pounds a month. (SOURCE)
By comparison to other OECD countries, we can easily see, Australian minimum wages are actually located at the miserly end of the spectrum. Australian workers are therefore hit by a double whammy: they have some of the lowest minimum wage rates in the OECD as well as some of the lowest unemployment compensation rates. These two circumstances explain why Australia also has one of the highest poverty rates in the OECD - 14.3 percent, just behind the United States (which has 17 percent poverty) and much worse than the U.K. and Ireland, where the poverty rate is around 12.5 percent) (figures are for 2004). (SOURCE - EPI PDF)
What's more, the trend throughout the OECD is to either maintain the minimum wage at its present rate (e.g, the Netherlands, where it has been frozen since 2003, the United States, where the rate has not changed in eight years, and the Canadian province of Ontario, where this year's increase was the first in eight years) or to actually increase it. In 2005, twelve European countries increased their statutory minimum wage rates by an average of 9.2 percent. (SOURCE) In Canada, where rates are determined by the provinces, eight provinces increased their minimum wage rates during 2005 - Alberta, New Brunswick, Prince Edward Island, Ontario, Manitoba, Quebec, Newfoundland and Labrador, and Saskatchewan. In Sweden, municipal workers will receive major increases both this year and 2006: 'the minimum monthly wage for employees older than 19 years of age is raised by SEK 400 to 13400 (EUR 1431) in 2005 and from 2006 to SEK 13800 (EUR 1473). For employees with vocational training and one year working experience, the minimum wage is raised with SEK 1000 to 15 000 (EUR 1601) in 2006.' (SOURCE) In New Zealand, the government plans to increase the minimum wage from nine dollars fifty per hour to twelve dollars over the next three years. (SOURCE) One has to wonder why employer groups in Australia feel the need to aim for reductions in minimum wages when the trend almost everywhere else is towards increasing them.
In short, Australia not a country that enjoys high minimum wages. If Mike Steketee is right in claiming that 'minimum wages as a proportion of average incomes are higher in Australia than in most other Western countries,' then the explanation can only be that average incomes in Australia are significantly lower than in other Western countries. Since that seems most unlikely, my conclusion is that Steketee and others making similar claims are simply trying to pull the wool over our eyes. Certainly, if minimum wages were so very high in this country it would seem difficult to account for our relatively high poverty rate.
As it turns out, Australia has one of the highest minimum wage rates in the world - but only because many countries have minimum wage rates, and most of them are countries where wages are significantly lower than in Australia, while others are poor countries like Brazil where such laws are a dead letter. If we compare Australia with genuinely comparable countries - i.e., other OECD countries - the rates are only higher than those of the United States (where, according to one calculation, the minimum wage today is 35 percent lower than was earned by 'unskilled, non-union labor in the height of the Great Depression'), some Canadian provinces and New Zealand. In 2003, the minimum wage in Australia was 444 dollars a week or 1776 dollars a month. This was, using the May 2003 exchange rate, a sum equivalent to 993.6 Euros. In the EU alone, there were in 2003 six countries with a minimum monthly wage of more than 1000 Euros: Ireland, the UK, France, Belgium, the Netherlands and Luxembourg. (SOURCE - EUROSTAT PDF)
In addition, several other European countries that do not have statutory minimum wage rates have de facto minimum wage rates well above 1000 Euros per month. This includes Switzerland and all the Scandinavian countries. In the latter, de facto minimum wages are about twice those of the United States. As one commentator observed, 'The big difference between the Nordic countries and the U.S. is the wage spread. The main reason is that the lowest-paid workers in the U.S. have very low incomes, indeed. The minimum wage there is equivalent to NOK [Norwegian kroner] 45 per hour, and that is the actual wage for many millions of workers. The minimum wage in Norway is twice as much, NOK 90 per hour, and even that level is regarded by LO [i.e., the Norwegian Trade Union Association] as too low.' (SOURCE) In Sweden, the rate is reportedly somewhat higher: in Sweden 'the de facto minimum wage ... is more than twice the legal minimum wage in the United States.' (SOURCE) According to one source dating from May 2003, this is a sum equivalent to 930 pounds a month. (SOURCE)
By comparison to other OECD countries, we can easily see, Australian minimum wages are actually located at the miserly end of the spectrum. Australian workers are therefore hit by a double whammy: they have some of the lowest minimum wage rates in the OECD as well as some of the lowest unemployment compensation rates. These two circumstances explain why Australia also has one of the highest poverty rates in the OECD - 14.3 percent, just behind the United States (which has 17 percent poverty) and much worse than the U.K. and Ireland, where the poverty rate is around 12.5 percent) (figures are for 2004). (SOURCE - EPI PDF)
What's more, the trend throughout the OECD is to either maintain the minimum wage at its present rate (e.g, the Netherlands, where it has been frozen since 2003, the United States, where the rate has not changed in eight years, and the Canadian province of Ontario, where this year's increase was the first in eight years) or to actually increase it. In 2005, twelve European countries increased their statutory minimum wage rates by an average of 9.2 percent. (SOURCE) In Canada, where rates are determined by the provinces, eight provinces increased their minimum wage rates during 2005 - Alberta, New Brunswick, Prince Edward Island, Ontario, Manitoba, Quebec, Newfoundland and Labrador, and Saskatchewan. In Sweden, municipal workers will receive major increases both this year and 2006: 'the minimum monthly wage for employees older than 19 years of age is raised by SEK 400 to 13400 (EUR 1431) in 2005 and from 2006 to SEK 13800 (EUR 1473). For employees with vocational training and one year working experience, the minimum wage is raised with SEK 1000 to 15 000 (EUR 1601) in 2006.' (SOURCE) In New Zealand, the government plans to increase the minimum wage from nine dollars fifty per hour to twelve dollars over the next three years. (SOURCE) One has to wonder why employer groups in Australia feel the need to aim for reductions in minimum wages when the trend almost everywhere else is towards increasing them.
In short, Australia not a country that enjoys high minimum wages. If Mike Steketee is right in claiming that 'minimum wages as a proportion of average incomes are higher in Australia than in most other Western countries,' then the explanation can only be that average incomes in Australia are significantly lower than in other Western countries. Since that seems most unlikely, my conclusion is that Steketee and others making similar claims are simply trying to pull the wool over our eyes. Certainly, if minimum wages were so very high in this country it would seem difficult to account for our relatively high poverty rate.
