Australian Commentary (25) – The Folly of Minimum Wage Laws

It is a fateful error on the part of our most valuable contemporaries to believe that economics can be left to specialists in the same way in which various fields of technology can be safely left to those who have chosen to make any one of them their vocation. The issues of society’s economic organization are every citizen’s business. To master them to the best of one’s ability is the duty of everyone.[1]

For generations now, nations around the world have put up with governments making up minimum wage laws for employees. Australian governments (through the Conciliation and Arbitration Commission) have been compelling employers for over a century with all manner of awards for industries, supposedly in the name of “wage justice.”

But “wage justice” doesn’t begin and end with governments or people employed by governments passing edicts. True wage justice can only come about when employers and employees can get together to negotiate outcomes, without some distant, undesired 3rd party dictating what’s going to happen.

I’m not sure whether these ideas are dreamed up because their exponents cannot see, or don’t want to see. It’s one or the other. But this much is clear: a Messianic view of one’s abilities has a remarkable way of blinding you to the truth, with painful consequences.

The Bible says that:

A poor man who oppresses the lowly is like a driving rain that leaves no food (Prov.28:3).

Minimum wage laws are actually an indirect form of oppression that actually cost jobs; they don’t create them. Why is that?  Because they are likely to price people out of the employment market. The evidence for this (compiled by such economists as Walter Williams) goes back now for decades.

Hardly any two sets of employment circumstances are the same. Yes, a carpenter is a carpenter, wherever they may be. But the living and working arrangements for carpenters in Bondi, won’t be the same as in Bourke, or Broome or Cooma. Thus to have a “one size fits all” approach to a carpenter’s wages, based on the notion of “wage justice,” only makes for an employment nightmare for employers and employees.

My wife and I like to go out for coffee, which we do at least once a week. I guess there are hundreds of coffee shops around Brisbane, so coffee outlets are a big and growing industry, nationwide.

Let’s say that Coffee Shop Katie has an arrangement with her boss Bill Barista, where he pays her $22/hour to serve customers, wipe down tables, wash up dishes and sweep the floor. Katie is studying, and needs the work to pay her way through university.

But an edict comes from on high, from the Federal Whiz-Bang Know it All Commission, saying “All Australian retail food employees are to be paid $26/hour.”

Bill says to himself, “There’s no way I can afford to pay that. I’ll have to serve the customers myself, do all of Katie’s work, and give her the flick.” So, Bill’s now working harder, and Katie’s out the door. “Sorry Katie!”

Minimum wage laws are actually the fulfilment of what the Bible says: “…even the compassion of the wicked is cruel” (Prov.12:10). And this is why the promises of socialism for employees inevitably prove to be both delusional and oppressive. Jesus Christ opposed such evils, and came to free people from them (Luke 4:14-21).

What is needed is flexibility; the ability of employers and employees to work out a deal which is equitable for each of them. We’ve been doing that for thousands of years; why’s it got to change?

Not everyone gets all they’d like. But that’s far superior to having a totally unsatisfactory edict dumped on them by some distant bureaucracy that has no idea, and may not care anyway. That’s the stuff of the totalitarian state, not a free society.

Distant, elite groups cannot make good assessments of individual circumstances, because of the multiplicity of differences there may be in employment circumstances. Only the individuals can, because they are the only ones intimately familiar with their circumstances. Furthermore, it is in their interests to come to a successful employment contract or arrangement, so they will be determined to get a suitable outcome.

Conclusion:                                                                                                                            

What would be the best thing to do with all the Awards and arrangements that have been worked out in the nation, without any reference to the people concerned?

Consign them to the bin, and let people work out their arrangements, themselves. Employers and employees will talk to one another, come to an arrangement, and get to work.

We’ll save ourselves a whole lot of time and money when we abide by the KISS Principle: Keep it Simple, Sweetheart. And we get rid of all the tax-payer funded organisations that were conceived in a fit of God-denying stupidity. And we’ll all breathe a sigh of relief.

 

[1] Ludwig von Mises, in a review of Murray Rothbard’s “Man, the Economy and the State,” 1962.