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How Low Is Low
Peter Costello, John Howard, The Rev. Kev and the BCA ACCI have all been claiming that we have been earning too much. The AIRC has put up wages by $70 too much, and that this is keeping people who want to work out of work.
Unfortunately this mantra is seemingly accepted as "The Truth" so its OK to institute a new body to raise wages rarely and not to have to take into account social needs. And its OK to select a chair who has spoken vehemently against the whole basis of the Australian system for setting wages, incorrectly blaming Higgins for the demise of H V Mackay when the company never even paid the wages prescribed by the Commissioner.
So your social needs and living conditions won't be a factor for the Low Pay Commission. Only business profits matter.
Ian Watson has studied various reports on living wages and employment levels and concluded that the evidence in Australia was like a needle in a haystack. Overseas reviews reach the same conclusion.
Sally Cowling and William Mitchell, from the Centre For Full Employment and Equity (CofFEE) at the University of Newcastle look review some of the studies in their Working Paper Taking the low road: minimum wage determination under 'Work Choices'. (http://e1.newcastle.edu.au/coffee/pubs/wp/2005/05-18.pdf)
They refer to the OECD, never an institution to back away from any policy that favours the unfettered operation of the market (ie capital over labour) There is little agreement, at either the theoretical or empirical level, about the precise employment effects of minimum wages, at least over moderate levels relative to average wages." The OECD do push the line that youth employment is adversely effected by higher minimum wages but then refute "the oft-repeated claim that minimum wages cause employment losses among young workers, arguing that, on the basis of the available evidence, it is not clear that a rise in minimum wages has unambiguously led to job losses for youth in all circumstances." (Cowling and Mitchell 2005)
But all these "experts" ignore the most solid economic evidence that comes from the market fundamentalists favourite model of the cowed employee economy. In the US the living wage movement has been active seeking city wide ordinances to raise the minimum wage since 1994. There is then much solid evidence to be drawn from successful campaigns in various large US centres that raising the wage has improved living standards, maintained working hours and maintained successful businesses. And this success has been in areas so often targeted as the low wage sector; restaurants and cafes.
A study published by the Institute of Industrial Relations at the University of California, Berkeley on the minimum wage in San Francisco is unequivocal on this.
Studies in Baltimore show that with the living wage ordinance city contracting costs have increased by LESS than the rate of inflation.
Studies in Los Angeles show no measurable effect on the Cities fiscal situation
A study of living wage ordinances in three New England cities found that contract costs only rose in one city.
• Multiple studies have shown that the bidding for municipal contracts remained competitive or even improved as a result of living wage ordinances.
Robert Pollin, from the Political Economy Research Institute at the University of Massechusetts has been a big supporter of the living wage movement and the institute has published a number of papers. One key of Pollin's work is the misplaced, as he sees it, emphasis on one set figure as the "living wage". Just as Higgins set the rate in Australia for a wage earning man to be able to live in frugal comfort with his family, Pollin is critical of a figure that does not account for family size and circumstance, living cost differences between one city and another or between different areas of one city like Los Angeles.
One aspect addressed by the living wage movement through municipal authorities is the payment of contractors. The movement explicitly targets this area so that Councils cannot reduce costs by accepting lower tenders (which mean lower wages.
So the two common themes across active living wage cities are:
(1) that wages should be high enough to allow workers to meet basic needs (i.e., "living wages"),
(2) that municipal policy should encourage or require living wages for its employees and contractors, rather than exacerbate the problems faced by low-wage workers.
Critics observed that some areas did have higher costs, despite overall lowering of costs for many municipalities. Higher costs were of course in areas where there were more actual employees such as security and child care. However a key factor that contributred to cost reductions was not reducing the number of council or contract employees, but in reducing the number of contracts. Consoldiating contracts into one larger overall reduced administration and associated cost significantly. The notion of competitive tendering foir each and every council service is thus undermined. Why not do it all in house as that would have the biggest impact on administration costs.
The other impact when tendering was carried out under a living wage ordinance, was an increase in the number of bidders because the employers who paid higher wages now knew that they were competitive because others were required to meet a wage minimum.
The study in San Francisco was based on the ordinance that effected airport workers. It estimated a cost of $1.42 per passenger, hardly likely to dent demand.
The benefits for workers included improvements for marginal workers in various age groups, locations and ethnic backgrounds. For example workers benefiting from the Boston living wage policy were also disproportionately poor and low-income, especially prior to its implementation. Among those covered workers getting a wage increase under the ordinance, over half (54%) were from households with incomes too low to afford even a basic needs budget.
Brenner found in his study of the Boston ordinance that there was no significant difference in changes in employment (total employment or full-time equivalent (FTE) employment) between contractors who were forced to raise wages because of the law and those that did not have to raise wages
In Los Angeles an impact of about 1% in decreased employment was shown and the study of San Francisco Airport showed no measurable impact on levels of employment
Effects of Living Wage Ordinances on Firms
The Economic Policy Institute notes that one potential benefit of living wage ordinances (which is also one explanation for the minor impact on municipal budgets and employment levels) is that higher wage floors lead to decreased turnover and greater work effort among the affected workforce, as well as spur firms to seek out and adopt other means of boosting productivity. These responses could offset at least some of the increased labor costs experienced by employers. Most of the available research on living wages suggests that these types of responses are occurring.
Very marked decreases in employee turnover were shown in a number of the studies, including the San Francisco Airport where security screeners, who had a notoriously high turnover rate of 94.7% before the living wage, had just an 18.7% turnover rate after the living wage, where the average wage of security screeners went from $6.45 an hour to $10.00 an hour. Absenteeism also dropped.
Employers noted a corresponding increase in morale and productivity. These effects have been observed often in high-productivity unionized workplaces in the USA. The lower turnover of staff goes a fair way to offsetting the increased costs of labour ie higher pay but fewer costs through hiring and rehiring over and over again.
These studies show that all the rhetoric about wages being too high and that causing higher unemployment is just that rhetoric. The overwhelming evidence form a large number of empirical studies conducted explicitly on the issue of the impact an increase in wages has on employment, employer costs, consumer costs and living conditions of all workers shows exactly the opposite. That higher wages improve quality of life, quality of work and performance of companies.
The other key point that Cowling and Mitchell make that connects the WorkChoices policies to the Welfare to Work policies, is that the advocates of a lower minimum wage argue that having a minimum set by a Commission that "only" looks at fair pay for work ignore the other safety net payments the government provides, so the Commission should be taking these into account. It doesn't, according the AIRC opponents, so it should not be doing the job (and now does not). This at the same time as the government is pushing its mantra that to many people require income support and need to get back to work. Cutting the minimum wage does not help people get back to work and certainly does not stop people needing income support. Exactly the opposite is the case.
This article quotes liberally from the EPI Briefing Paper #170 February 16, 2006 |The economic impact of local living wages by Jeff Thompson and Jeff Chapman
Full paper is at http://www.epi.org/content.cfm?id=2276
The Political Economy Research Institute at the University of Massachusetts has an extensive archive on the Living Wage Movement at http://www.umass.edu/peri/resources/livingwages.htm
Sally Cowling and William Mitchell (2005) Taking the low road: minimum wage determination under 'Work Choices' Centre For Full Employment and Equity (CofFEE) at the University of Newcastle
Ian Waton (2004). Needle in a Haystack: Do increases in the minimum wage cause employment losses? (acirrt Working Paper no 90) http://www.acirrt.com/O01P002/A01/V01/_Assets/_Documents/WP90.pdf
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