Impact of Minimum Wages: An Australian Economic Perspective

This essay provides an analysis of minimum wages in Australia, exploring both the positive and negative impacts on the labor force, consumers, firms, and the government. It discusses the historical context of minimum wage implementation in Australia, its goals, and the role of the Fair Work Commission. The essay examines the effects of minimum wage on employment levels, inflation, and income distribution. It also addresses the challenges faced by small businesses in complying with minimum wage laws and the potential for automation as a response. The analysis considers the perspectives of both the supply and demand sides of the labor market, highlighting the potential for poverty reduction and increased spending power, as well as the risk of unemployment and reduced competitiveness. The essay concludes by emphasizing the need for careful consideration of the broader economic context when setting minimum wage policies to ensure a balance between supporting low-skilled workers and maintaining a healthy business environment.

Essay
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Table of Contents
Introduction................................................................................................................................3
Minimum wages.........................................................................................................................3
Analysing the positive and negative impact of the minimum wages.........................................5
Recommendations......................................................................................................................9
Conclusion..................................................................................................................................9
References................................................................................................................................11
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Introduction
There are more than 11200000 people are employed in Australia as part time and full
time. The median age of working in Australia is 40 years with median earnings of $1230 per
week which is before tax for the full-time employment. Any country uses minimum wage
policies to ensure that an individual is maintaining and living a quality life. Australian
government prepares minimum wage law to control, rule and monitor the industry regarding
the fulfilment of minimum wage effectively. Minimum wages were mainly introduced by the
Australian government with the aim of taking care of the low skilled and low paid jobs. This
will also prevent the Company to take advantage of the poor employees who want to work
even at lower pay for their survival. The concept of minimum wage can be better
acknowledged with the understanding of labour market.
Minimum wages
Minimum wage is the amount of payment set by the government as a salary and is a
mandatory amount needs to be paid to employees. The minimum wage was addressed in the
year 1907 (Australian government, 2016). Australia introduced minimum wage with the
intention of allowing the man to support its family with the basic essentials and necessities.
The most advantageous result of the minimum wage has been found with preventing the
exploitation of the adults, children, women and even the educated workforce. The fair work
commission reviews the payment of the minimum wage every year. Presently, the national
minimum wage is $16.87 per hour or $640.90 before tax for the period of 38 hours a week
but is considered to be lower for the age group of 21 years. The goals of minimum wage were
accepted widely but there were still some disagreements on whether the goals of poverty
reduction are achieved via minimum wage concept. Minimum wage is nothing but all about
distribution. If the average wages are provided at above the equilibrium wage then labour
supply exceeds labour demand which leads to unemployment.
With the 10% increase in the average wages, there is a decrease in employment by
8%. Average wages increase employment and will absolutely reduce unemployment. Fall in
the unemployment rate is also due to the fall in the real unit of the labour cost with respect to
the same period (Barr, 2012). Real unit of labour cost can be considered as a cost of
employing labour which is also adjusted with inflation and productivity of labour articulated
as an index. With the slight increase in the wages lower than the inflation and less than the
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productivity then there will be a decrease in a real unit of labour cost. Economist has also
recognized that the real unit of labour cost is inversely related to the demand of labour. There
is a multitude of labour markets under which there is each labour market has its own supply
and demand. Firms majorly employ people who would have earned below the minimum
wages and thus unemployment rises among those groups. The workers are although substitute
with the workers earning above the minimum wage.
The truncation effect will also greatly tell the imposition of the minimum cuts into the
distribution of the jobs (Bernal-Verdugo, et. al., 2012). The larger would be the minimum
wage as against the market wage then large will be the truncation effect. Australia labour
market has high minimum wages which is also relatively higher than that of the earnings as
per international standards. There is an excess supply of labour in Australian labour market.
Between the years 1983 to 2003, there has been a drastic change in the labour market
of Australia. The part-time employment has been increased from 17 to 29% in the year 2003.
More participation in the part-time job has been found from the women who covered 46% of
women than 15% of men. There was also change in the composition of employment with the
passage of time and 34% of the people were employed in the goods-producing industries
which dropped with the percentage of 25% in the year 2003 (Australian government, 2016).
The participation has been increased from the advent of minimum wage laws.
Figure 1: Participation of labour force
Source: (Man, 2017)
The participation was also found more from the unqualified women which were also
the change towards the development of the economy of Australia.
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Figure 2: Participation of labour force by age and education
Source: (Australian government, 2016)
Between the years 1983 to 2003, the participation of the qualified women was 12.6 %
and unqualified women were of 12.1%. The major increase in participation is found from
women than that of men. The participation was more found in the goods-producing industries
such as mining, electricity, gas, water, and agriculture etc.
Analysing the positive and negative impact of the minimum wages
The minimum wage has both positive and negative impact on the labour force,
consumers, firms and government of Australia (Ellis and Smith, 2010). Minimum wage is
basic government price control under which the floor price is set which indicates the
minimum price has to be paid for specific goods and services. With the setting of prices, the
government aims to ensure that an individual get a reasonable wage in various jobs. The
government also ensures that employees are having quality life within the borders which
enhances the economic position of the workers.
The minimum wage laws of government seek to bring a level of economic equality
which also prevents underpayment to the poor citizens (Kaufman, 2010). With the use of
minimum wage laws, Companies are forced to pay equally to individuals irrespective of their
sex, race, religion etc. The minimum wage enhances the state budget revenue from the
income tax. The living condition of the employees will improve the minimum wages and will
also expand the Australia demand for many areas such as tourist, business and investment
purposes. The business group will expand the production scale and result in big
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improvement. But if the government will increase the minimum wages then it will likely to
cause unemployment which will further delay in recovery of the economy (Kluve, 2010). The
prices of the product will also increase in order to transfer the burden of high minimum
wages and increases the prices in Australia causing inflation.
Businesses generally a response to minimum wages by making some adjustments in
the costs, reduction of hiring, cutting of the work hours of the employee, decreasing benefits
and charging of higher prices. They make other decision in order to maintain their net
earnings and the current firm are also moving towards the rationalization and automation
which is leading to less demand of employees or workers as some part of the work is
performed by the machines itself.
Firms can easily avoid other employment benefits if they are paying minimum pages
to their employees. They are also not required to pay overtime and can use more work on a
part-time basis. Paying high minimum wages results in high labour expenses and forces firm
to lay off current employees (Leamer and Storper, 2014). Minimum wages lead to difficulties
in the payment of high paid workers. Australian governments used to visit the minimum
wages laws frequently with the aim of ensuring that non-skilled workers received what they
deserved and adequately compensated for their services. With the minimum wages
requirement when a firm brings automation there is a decrease in the labour cost but also lead
to a reduction in the demand for low skilled workers in the labour market. With the increase
in the minimum wage, the employees who are already receiving the minimum wage payment
will be demotivated and will also lead to a negative environment in the firm.
In short term for any industry whether manufacturing, healthcare and agriculture
industry the minimum wages will result in an increase in the cost of employment and
operational burden on business. There will be an operational burden on the business which
will include especially the household appliances, light and other fields. There is high
competition in Australian business, further; the corporate profits are also very small.
Corporate human cost lead to difficulties for the corporate to deal with and directly lead to
the losses. In a long-term perspective, the firm will increase the wages and which will also
increase the production costs indirectly forces companies to shift to the technical content
(Meer and West, 2015). The increase in the minimum wages will enhance the spending
power which will allow the manufacturer to produce more goods and supply more goods and
ultimately reduces the increased payment.
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Small business is directly affected by the minimum wages requirements. A large
amount of the profits of this business is paid as an operating expense including supplies,
equipment, mortgage, credit lines and wages of employees (Neumark, et. al., 2014). The
single and the largest cost have been found to be the wages of employees and providing
benefits to them. In case of enactment of higher wages, the small business will be required to
hire few employees to comply with the laws and will also impact directly on the
unemployment rates. After considering the demand and supply side of the minimum wage
requirement, supply-side considered the minimum wage to be an unnecessary regulation of
government for small business and demand side consider that minimum wage is assisting in
lifting up of the unskilled workers out of poverty.
Workers get the public assistance for getting benefits from minimum wage. This also
motivates them to search for the job. The minimum wages also gives the chance to the
parents to provide also for their family and chances for survival even when there are no
marketable skills with them. There are no defined positions for getting minimum wage, an
employee or worker must have basic skills (Kluve, 2010). There is also not required to have
the technical skill to get eligible for minimum wages. There are some unintended
consequences of the minimum wages which enhance the liability of the individual to pay
high-income tax. Individuals are required to pay high taxes with an increase in income. With
the amendment in the minimum wages, more money is given to the population of lower
income. The poor people spend all their income in the food, cloth, and housing. Hence the
increased minimum wages will give an advantage to poor families and will also sell the
commodities to the poor.
The high minimum wages are paid to workers or incremental lead an individual to fall
under higher tax brackets. Long-term employees and skilled employees do not receive the
adequate benefits from minimum wage laws as they deserve high for what is paid as per
minimum wages laws due to their high skills and knowledge (Kaufman, 2010). Raising
minimum wages for these individuals may lead high cost for doing business for any firm.
One of the bad effects of the minimum wage is found at the time of bad economy.
Minimum wages laws affect the workers in the company such as manufacturing and
trading units that have minimum wage employees in Australia. Those employees who are just
working above of the minimum wage will feel unfair when the minimum wage workers will
be receiving higher due to rise in the minimum wage payment. Instability in the economy will
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result less or no new hiring by the firm. Employer mostly prefers to pay its existing
employees to work for more hours rather take the cost of hiring the minimum wage
employee. Hence, this will result in difficulties for the minimum wage workers to find a job
when the economy is in bad shape (Ellis and Smith, 2010). The impact on the total
employment from the minimum wage may not be too big but will impact the workers earning
a low income, wages and are also having low skills and qualifications.
The impact of minimum wages could also be found on consumers of Australia.
Minimum wages may increase the spending of consumers and pay the bills. Hence it can be
said that minimum wages enhance the spending or purchasing power of the consumer with
minimum wage. With the dissatisfaction on the minimum wage amount, the employees may
not work with full commitment and enthusiasm and the result of such could be seen in the
products and services of the Company. Hence there will be providing lower quality products
and services to the consumers. Furthermore to response with the minimum wages laws, the
firm also set their prices of grocery stores in a forward-looking manner with the aim of
increasing the minimum wages of the employees in the future. In other words, the firm may
expect that with the passage of time the legislation may require paying increase minimum
wages. Therefore the consumer will be requiring paying high prices to firm to purchase goods
and services. In manufacturing industries, labour cost is almost two third of the total
operating costs and also includes the labour cost for the managers and executives who get
more than the minimum wages.
Apart from the above impact of the minimum wages on the various factors, there are
many other effects. There is an increase in the likelihood especially at the time of downturn
of the economy. There is also cutting off training expenses by the business on its employees.
The turnover of the job is also high and discourages part-time workers and reduction in the
attendance at the school (Cahuc, et. al., 2014). Workers are derived from uncovered jobs
which reduces the wages of the sectors. Employers are also encouraged to cut back fringe
benefits and install labour saving devices. There is also increase in teenage crime rates due to
the high rate of unemployment.
Labour- labour substitution is also the result of minimum wages requirement within
the business. Employers replace the lower skilled workers with that of higher skilled with the
aim of enhancing minimum wages. This harms the least skilled workers and hence most
skilled labour are replacing the less skilled workers. Furthermore, it is also evidenced that the
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minimum wages will lead to political popularity as it is helping the poor but is not reducing
the level of poverty. Many of Australian workers are not earning wages. Minimum wages
have generally been found to distribute income to lucky workers from the small group from
those of unlucky workers lose their jobs.
Recommendations
Minimum wages must change with the effect of the inflation. But at the same time,
high minimum wages will result in unemployment in Australia as the firm will not be able to
afford the workers with a high minimum wage(Cahuc, et. al., 2014). A proper evaluation and
analysis of the market must be performed by the government before fixing the minimum
wages for any industry. Minimum wage should not result in inequality must address the
essential needs of the workers of all kind. The authorities are required to deal with problems
which can occur after the implementation of the rise in minimum wages. The large
disadvantage of high minimum wages will push away the workers from the labour market
which could be strengthened by matching the weak job labour with the job training helping
them to work suitably.
Training will also enhance their competitiveness in the market which will lead to their
high demand in the market as thereof the skilled workers. Job opportunities should also be
provided to the youngsters by following up the enterprises after the introduction of minimum
wages of high minimum wages (Barr, 2012). A large number of small and medium
enterprises must be watched closely by the government authorities that whether they are
employing the workers with having adequate knowledge and skills for the required job. The
government should work as helping hands which can further help these workers to tide their
difficulties. Their vocational skills must be improved for dealing with the threat of
unemployment. The Australian government is more required to focus on fostering economic
growth which can generate a rise in wages and can provide more opportunities to workers.
The government should also mandate the minimum number of unskilled workers to be
employed in any industry in order to prevent the Companies to substitute skilled employees
from that of unskilled employees.
Conclusion
The ultimate goal of the minimum wage has been found to stabilize the low paid
workers and for the benefit of poor people, not the business. The minimum wages laws
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provide the guarantee of the minimum wages to the workers, women, adult, and child. The
economic growth is somewhat getting an indirect impact on the income in the hands of the
society. With minimum wages, the society gets the assured payment and also the purchasing
power to spend on their necessary items. Australia has quite high minimum wages
requirement which has slightly enhanced the unemployment rate but still, minimum wages
requirement is not fulfilling such issue. Coordination and commitment of the industry can
deal with the issue of unemployment in Australia. Increasing minimum wages is significant
with the increase in the currency value and inflation and now the government cannot move
below to the minimum wages instead will have to increase the wages for the betterment of the
society at large.
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References
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Economic Studies, 54(2), pp.251-273.
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Kaufman, B.E., 2010. Institutional economics and the minimum wage: broadening the
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Leamer, E.E. and Storper, M., 2014. The economic geography of the internet age. In Location
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Meer, J. and West, J., 2015. Effects of the minimum wage on employment dynamics. Journal
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economy: continuity and change. Cambridge University Press.
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Neumark, D., Salas, J.I. and Wascher, W., 2014. Revisiting the Minimum Wage—
Employment Debate: Throwing Out the Baby with the Bathwater?. ILR
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