September 8, 2014 by JImbo
Bear with me here if you want the REAL DEAL on that whole “We Need a Higher Minimum Wage Like Australia” thing going around Facebook. I invite any real economist to jump in here. However, I think I’ve covered most of the bases.
If amateur economics and common sense don’t appeal to you, then read on. I promise the next blog post will be fun and entertaining. And silly. With kittens or something.
Anyway, for the nerds and policy wonks out there… refill that coffee cup. We’ll be here for awhile. I’ll try to make it as least painful as possible. And again, if I’m wrong politely tell me. I’m trying to learn here. I think I have a handle on the basics though.
I’ve heard a lot of talk about how GREAT the Australian Minimum Wage is. “Its’ $16.88 an hour! Everyone lives like kings! We need to do that!)”
Well, one Australian researcher noticed that’s not exactly the case. He studied the change in employment figures when Western Australia led the nation in higher minimum wage laws. It raised in yearly increments of a few percent each time. He compared that to the labor figures for the following year.
Then the rest of the country followed.
What he found:
After raising the minimum wage in Western Australia and leading to the loss of thousands of low-wage jobs, he came up with a formula that held true for each successive minimum wage increase levels.
For every 1% you raise the minimum wage, you lose .29% of the labor force.
So if we wanted to, say double the minimum wage to $15 an hour in America (alright a bit more than double), we can figure out roughly how many jobs that would cost.
50% x .29 = 14.5% of the labor force.
Now, I don’t expect it to be of the TOTAL labor force. After all, businesses with no one making minimum wage might not see much effect at all (at first.)
So, let’s say 14.5% of ONLY those making minimum wage are fired.
In America it’s a bit less than about 4 million workers out of 150 million total.
So, 14.5% of 4 million is 580,000 people.
Is that a lot of people to lose their jobs?
It is if you’re one of that 15%.
That does leave the other 85% to get higher wages. So, WOO! Right?
Well, for now. Sorta.
You see, in Australia they ALSO have a tiered system by age. Only those 21 and over and not an intern or assistant or in some special program make the FULL minimum wage. Anyone 20 and under make progressively lower after that. So for example you can hire a 15 year old for $6 an hour and a 17 year old for $9.50. You can also hire them without many of the benefits adults get. After all they’re kids so they don’t need medical and paid vacations and stuff right?
So what did business do?
HIRE A BUNCH OF 15 year olds!
And fire a bunch of “geezers” over 21 of course.
After all, you can get almost THREE 15 year olds for one 21 year old.
You really need quantity not quality at McDonald’s.
So, if you’re college aged you’re basically screwed.
All of those ‘adults struggling to raise families” that Democrats talk about?
Screwed. (Sorry Willie, turn in your mop. There just isn’t $120 of mopping to be done today)
Since we’re talking $15/hr and not $16.88 minimum wage in our American example, here the 15 year old rate would be about $5.25.
So actually what the new minimum wage law it did is LOWER the minimum wage for school kids and RAISE it for adults. The predictable result was that most adults making the minimum wage were fired and school kids were hired instead.
Where that wasn’t feasible or desirable, there was an investment in automation. After all, do you really NEED a person to sit at the cash register and press pictures of food?
So, more automated ordering and fewer workers.
Or, failing that the company folded.
Now the “Fair Wage” advocates take another step that some call disingenuous. I call it unethical.
They compare US with Australian “Bic Macs”
They say “Well you can buy a Big Mac in half the amount of time you can in America!”
You can buy an “AUSTRALIAN Big Mac” for $4.94 with 18 minutes of work at $16.88.
However, they’re only 80% of the size of ours and cost a lot more.
In America a “REAL Big Mac” is $4.20. If we sold TINY “Big Macs” like they did Down Under it’d be $3.36. At $7.25, it’d take 28 minutes to earn one.
You’re right that’s a bit longer.
However, remember that MOST folks working at their McDonald’s are not making that money. They got fired (and make $0 dollars) or they are kids making just over HALF of that. So, most of their McDonald’s workers actually make LESS than ours do.
Wanna know the kicker? Their McDonald’s can only offer these wages because of their health care and generous gov’t benefits system. So, McDonald’s doesn’t have to pay for medical and other bills like here. Their corporate taxes are cheaper too.
So, the TAXPAYERS get to subsidize all those McDonald’s meals.
Yummy yum yum!
In fact, the average Australian has about 75% of the disposable income that we do.
And of course on top of the LIST COST, they ALSO get to pay a nice 10% VAT, or National Sales Tax on top of every purchase.
Envying them yet?
So let’s see.
Their $4.94 “Mini-Mac” is actually $5.43. Since they have less money in their pocket after high income taxes that comes out to about $7.24 if they were in the United States with lower taxes (well except for NY)
Meanwhile, here our “Mini-Mac” would be $3.36.
Our “poor” American McDonald’s employee is working that 28 minutes for a “Mini-Mac.”
Our “rich” Australian McDonald’s employee is working the equivalent of 26 minutes for the same thing.
(You may say that a minute is a minute, but essentially this measures how much they work AFTER ALREADY WORKING TO PAY 41% higher rent, electricity, etc bills)
Not a huge difference.
For the FEW people who get to make that wage and weren’t fired?
Cheer if you want.
I’d rather have more people working.
That 15% more people working is more people paying taxes. More people paying taxes means cheaper taxes. Cheaper taxes means more money in my pocket.
What good is potentially making more money if you are either still unemployed or too broke paying taxes to enjoy it?
(On a side note, remember who the people with the LOWEST minimum wages at the beginning of this post were? And remember who the fastest growing economies in the world are? Just sayin….)