Minimum Wages

27th August 2013

Australian experience with a policy many in NZ argue is “humane” and “only fair” and “civilised”. Read about the civilising influence of minimum wages in Western Australia and Australia more generally.”

John Stossel looks at the evidence on Australia's minimum wage:

IA guest on my show once said that Australia shows high minimum wages work. After all, Australia has a much higher minimum wage (about $15 U.S. dollars per hour) and lower unemployment (5.7%.)

I responded on my blog that Australia's teen unemployment rate is bad -- 16.5% -- and that maybe it's because employers don't want to hire inexperienced workers for such a high wage.

But I was wrong to cite that number the way I did, as a writer at the (usually clueless and far left-wing) Columbia Journalism Review points out. First, the U.S. teen unemployment is even worse (24%). Second, the Australian minimum wage is actually set at less than $15 for teens. For kids under 16, the minimum is lower in Australia ($5.50 USD) . Older Australian teens, though, have a higher minimum wage than Americans, as the Australian minimum wage increases by age until it hits about $15 at age 20.

Just a few months ago, New Zealand followed Australia's lead in lowering its minimum wage for teen workers. American politicians should do the same.

Or should they? If minimum wages kill jobs, then why is Australia's unemployment rate lower than America's? It could be because of a huge mining boom, which drove salaries for truckers up to $150,000. Or because Australia is relatively close to China and benefits the most from that country's booming economy and trade. Or something that I have no clue about, but that the market has already figured out.

What I do know is that a higher minimum wage kills jobs. It does that in the U.S. and in Australia. In a 2004 study published in the Australian Economic Review, economist Andrew Leigh looked at what happened after Western Australia increased its minimum wage compared to the rest of Australia.

He found: "Relative to the rest of Australia, the [percentage of people employed] in Western Australia fell following each of six [minimum wage] rises." (Study here, update here.)

Another Australian economist, John Humphrey, summarizes the findings this way:

"[Leigh found] that for each 1 percent increase in the minimum wage we can expect... [to lose] 96,000 jobs" in Australia.

In his paper, Leigh cites many other studies that find similar results in the United States, and concludes:

"Australian minimum wages do 'bite', but it is not clear that they bite more fiercely than in America."

From the Future of Capitalism blog.

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