Senator-Elect David Leyonhjelm: Let the people work

Senator-Elect David Leyonhjelm writes in the Australian Financial Review:

Thousands of Australians would love to have paid work. They include those just out of school, just out of jail, age and disability support pensioners, sole parents and refugees.

Thousands of Australian businesses would be willing to take a chance on these job seekers and pay them more than the $5 to $10 an hour they currently receive on welfare.

But they are forbidden from doing so. It is against the law to offer or accept any such arrangement. To take on a new starter and pay them even double their welfare payment is illegal. No matter how poor their resume or how willing they are to work for rates of pay and/or terms and conditions that suit them and their families, they can only be employed if they are paid the minimum wage, notionally about $16.40 an hour but over $20 an hour for some casuals.

Such bans on low paid work create unemployment. Before he entered Parliament and became Labor’s Shadow Assistant Treasurer, Dr Andrew Leigh was a professor specialising in labour economics. He found that reducing the minimum wage in Western Australia by ten percent would increase employment by around three percent within three months.

Over a longer period, the employment gains would expand. And a reduction in the federal minimum wage would have an even greater employment impact, as the WA minimum wage in Leigh’s study covered very few workplaces.

In a separate study Dr Leigh found that most of the people on the minimum wage are in middle income households. By contrast, low income households are typically in that position due to unemployment. Abolishing the minimum wage, by creating employment, would help them the most.

Other studies have shown that most people on low wages move on to higher wages after about a year. This shows that low wage jobs are an opportunity for people to start at a bottom rung and work up. The problem is, Australia’s regulated minimum wage is so high that many cannot even reach the bottom rung and begin to climb.

In fact, Australia’s minimum wage is one of the highest in the world. Australians start paying income tax once their annual income exceeds $18,200, but they are not allowed to get a full time job unless it pays more than $32,000 a year. In the OECD, only Luxembourg and France have a higher minimum wage.

Read the rest at Catallaxy Files.

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