The question about minimum wages in Australia - Russ Roberts comments

by RUSS ROBERTS - Cafe Hayek

A number of people have asked me (Russ) about Australia's minimum wage. It's $15.96 an hour. Yet the unemployment rate in Australia is only 5.4%. The implication is that maybe the minimum wage doesn't have the effects it is alleged to have.

Could be–maybe the laws of economics don't apply to Australia. Or maybe the laws of economics don't apply in countries that start with an "A." Or maybe the world is a complicated place and you have to think carefully about how it works.

My first thought is to wonder how the minimum wage is enforced. Does it apply to all jobs? I know it doesn't apply to all ages at the same rate–younger workers confront a lower minimum wage:

For junior employees, the minimum rates are:
Under 16 years of age $5.87
At 16 years of age $7.55
At 17 years of age $9.22
At 18 years of age $10.90
At 19 years of age $13.17
At 20 years of age $15.59.

But still, every one over 20 years of age earns at least $15.59 per hour? Shouldn't that lead to more unemployment than 5.4%?

I would think so, given my understanding of Australian standards of living. And if the law applies to everyone and is enforced. Is it? I don't know. Here's what the government web page for the Australian minimum wage say:

The national minimum wage acts as a safety net for employees in the national workplace relations system to provide minimum rates of pay for employees not covered by awards or agreements. National minimum wage orders are made by the Minimum Wage Panel of the Fair Work Commission.

One thing I've learned. I don't know enough about Australia's labor market regulations but it doesn't appear to be anything remotely like what we call a market here in the US.

And it turns out that unpaid work is on the rise among young people in Australia–what we call an internship here in the US–a way of avoiding the minimum wage–somehow the minimum wage applies unless you pay ZERO. In which case it's OK.

Here's a charming excerpt from a recent government study of unpaid work:

The report extrapolates that, if the trend in unpaid internships is left unchecked, it is likely to gather pace as it has done in other countries like the United States, where employers are forced by their competitors into a 'race to the bottom'. However, the report also notes that concern about unpaid work arrangements, especially as they impact on young people, has become a focus in other developed economies in recent years, especially since the Global Financial Crisis. In the United Kingdom, for instance, the present government has made a concerted effort in recent years to end any exploitation and to ensure fair access by all to the labour market.

Do we have some Australian readers who can tell us more about the Australian labor market?



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