Minimum Wage To $16.25? Yeah Nah

One of Labour’s proposed policies, in the unlikely event they are able to form a government after the election, is to raise the minimum wage by $2 an hour to $16.25 an hour.

  1. The literature on the minimum wage is all over the place. It’s not as simple as a supply and demand story. A major reason is things like working for families. But there are many people who would lose jobs or shifts.
  2. There are long term social mobility implications – poor kids will have a higher opportunity cost of obtaining higher qualifications if they can find a job at that rate. So the very people you want to gain higher qualifications have to have very high future-time orientation to turn down $16.25 an hour for a student allowance.
  3. Hours actually worked matter – not all minimum wage earners work 40 hours a week. So the impact on “Hard Working Small Business Owners” is a lot less than some would have you believe. In fact, if a modest rise in the minimum wage affects your bottom line so badly, you should probably give up.
  4. The minimum wage is already in excess of 50% of the 2013 median hourly wage of $21.58 – making the minimum wage 75% of median hourly earnings is very high indeed. At $14.25 the minimum wage is already above 50% of the median hourly earnings at 66% so it’s likely there are already negative employment effects at play.

Just some quick thoughts. To achieve the objectives minimum wage / living wage proponents want to achieve – raising the incomes of the bottom quintile – could be far better achieved through a basic income or expansion of the independent earner tax credit.

If you’re looking for a more detailed overview of minimum wage literature including a lot of stuff on the youth minimum wage, check out the minimum wages tag at Eric Crampton’s blog.

Edit: clarified that minimum wage is already over 50% of median hourly wage of $21.58 in 2013

Read more:
Asylum Seekers And Benefit Cuts

The recent dismay over Kevin Rudd's decision to send asylum seekers to Papua New Guinea poses an interesting question. Do...

The Reconciliation Of Government With Liberty, 1915

The reconciliation of government with liberty (1915) by the founder of modern political science John Burgess provides us with an interesting...

Close