A lower minimum wage?

The Commission of Audit, despite a poor overall analysis, suggests many sensible individual policy measures. One is the need to lower the relative level of the minimum wage.

The Commission suggest that the minimum wage should fall to 44% of the average full time wage, from the current 56%. They argue that it is currently too high to encourage employment and growth. 

The standard argument is shown below.

The minimum wage is set above the market clearing rate. This encourages Q1-Q2 additional workers to seek work when they wouldn't at the market wage rate of 0W1. Also Q2-Q3  workers are not employed who would be at the market wage rate. Unemployment is reported at Q1-Q3.

Of course the argument for a minimum wage is that without it workers would receive a lower wage than 0W1 due to the relatively greater negotiating power of employers compared to employees. (The free market is failing due to market power.)

The Guardian article below outlines the case of the Audit Commission. They believe that it will help achieve full employment and future growth. However will lowering the minimum wage help the goal of equity?

Although Australia does have an absolutely high and relatively high minimum wage rate it is falling as a percentage of full time income compared to other OECD nations. When PPP is used it also looks more reasonable in comparison.

 

 

The Guardian article is here