A data point on minimum wages

I’m currently working on a section of my Economics in Two Lessons book dealing with minimum wages in the context of predistribution policies, so I thought I would compare Australia with the US, where the idea of a $15/hour minimum wage is currently a hot topic. In Australia there are two kinds of minimum wage. The PPP exchange rate is estimated at $A$1.30 = $US, which is fairly close to the market exchange rate at present, so I’ll give both $A and estimated $US equivalents

The standard minimum wage for workers aged 21 and over is $A17.29 hour ($US13.30) applying to employees under standard award conditions. These include four weeks annual leave, sick leave, employer contributions to pension plans and so on.

More comparable to the situation of US minimum wage workers are “casual” workers, employed on an hourly basis. Casual workers get a loading of at least 25 per cent, bringing the wage up to at least $A21.60 an hour ($US16.60), to compensate for the absence of leave entitlements. In addition, they have entitlements including:

* “Penalty” rates for weekend and night work (usually a 50 per cent loading, 100 per cent on Sundays)
* For workers employed on a regular basis, protection against unfair dismissal.

The policy question is: what impact have these high minimum wages had on employment and unemployment. That’s too big a question to answer comprehensively, but we can look at the obvious data points: the official unemployment rates (5.7 for Oz, 5.5 per cent US) and the 15-64 employment population ratios (72 per cent for Oz, 67 per cent US). So, it certainly doesn’t look as if the Australian labor market has been crippled by minimum wages.

Note: I’ll respond in advance to the widespread misconception that Australia is a special case due to mineral resources. Mining accounts for about 2 per cent of employment in Australia, and (because most mines are owned by multinationals) its contribution to Australian national income is also so, probably around 5 per cent.

* Workers aged 18 get about 70 per cent of the adult minimum, equivalent to around $US11.50 for casuals. But the great majority of US minimum wage workers (about 80 per cent) are 20+.

Predistribution: wages and unions (extract from Economics in Two Lessons)

Over the fold, an extract from my book-in-very slow-progress, Economics in Two Lessons. I’m getting closer to a complete draft, and I plan, Real Soon Now, to post the material so far in a more accessible form. But for the moment, I’ll toss up an extract which is, I hope, largely self-sufficient. Encouragement is welcome, constructive criticism even more so.

The book is aimed at a US audience (if it goes well, an Australian edition will follow, as with Zombie Economics). So, there are US-specific institutional points, but the general argument is applicable more broadly.

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What do Australian economists think about policy?

Jan Libich of La Trobe University has a new book out called Real-World Economic Policy: Insights from Leading Australian Economists. Each chapter has a fairly accessible introduction to an economic policy issue, along with an interview with an Australian economist: examples include Bob Gregory, Andrew Leigh and Warwick McKibbin. It’s useful both as an intro text and to get a bit of insight into how some of our leading economists think about the issues facing Australia.

Defending Australian institutions

The (presumably) forthcoming double dissolution will raise many issues. But most of them can be summed up as the defence of Australian institutions that have been under attack by radical extremists. I’m referring to such institutions as the ABC, CSIRO, the weekend, public education, the union movement, the fair go and our natural environment. Mention of any of these is enough to raise a derisive sneer from the radical rightwing apparatus that dominates much of Australian politics, most obviously the supporters of Tony Abbott who (ludicrously) call themselves “conservatives”. Turnbull promised something better but he is campaigning against all the institutions I’ve mentioned. It’s time to tell those who want to undermine our way of life in the name of free market ideology and rightwing tribalism where they should get off.

Anzac Day, 101 years on …

101 years on from the first landings at Gallipoli, Australian troops are still at war over the remains of the Ottoman Empire. Hardly anyone is fully aware of the history, which is one of the reasons we keep on repeating it. So, while we remember those who answered our country’s call, and particularly those who never returned, we should take the time to understand why they were there, and the futility of the wars in which we have engaged in the Middle East.

The struggle over the declining Ottoman Empire began well before the Great War itself, and was the proximate cause of the War (Sarejevo, where the Archduke Franz Ferdinand was assassinated was a former part of the Ottoman Empire, taken by Austria Hungary in 1878 and formally annexed in 1908). For much of this time, Britain was allied with Turkey, trying to check the expansion of the Czarist Russian Empire. But, as it happened, when the Great War broke out, Britain and France were part of the Triple Entente with Russia, and the Turkish government decided that its best hope for survival lay with Germany. So, Australia was at war with Turkey.

The object of the Gallipoli campaign was to force a passage through the Dardanelles, allowing the Western allies to provide aid to Russia and, if possible, knock Turkey out of the war. The ultimate war aim, formalized in the Sykes-Picot agreement was to partition the Middle East between Britain and France, with Britain getting what is now Iraq and France getting Syria and Lebanon*.

British control over Iraq continued until the mid-1950s, when the US moved in with the Baghdad Pact, later CENTO, one of the network of Cold War alliances modelled on NATO. But Iraq pulled out, and partially the Anglo-American oil holdings, setting the stage for two decades of conflict as the Americans sought to maintain the Middle Eastern sphere of influence they had inherited from Britain.

That culminated in Saddam Hussein’s seizure of power in 1979, and his decision to launch a war with Iran, in which he received extensive support from the US. The rest is recent enough history not to need repeating. The present chaos is the outcome of a century of Western involvement, colliding with the many and varied aspirations of people in the region.

Perhaps one day, Australian armed forces will leave the Middle East, and return home for good. That would be the best possible way to celebrate Anzac Day. In the meantime, Lest We Forget.

* A variety of contradictory promises were also made to the Russians (seeking more territory), the Arabs (seeking independence) and the Zionists (seeking a Jewish homeland). But, with minor variations, it was the Sykes-Picot deal that was implemented in practice.

The Smart State saves Queensland

I’ll be talking tomorrow (Tuesday) at the Queensland Jobs Growth Summit organized by the University of Queensland School of Economics and The Australia Institute.

The core point of my presentation is that the resilience of the Queensland economy, despite the end of the coal boom reflects the transition to a knowledge based economy, symbolized by the Beattie government’s “Smart State” strategy and the opposite of the nostalgic and reactionary Four Pillars (agriculture, mining, construction and tourism) strategy pushed by the LNP.

I, for one … (crosspost from Crooked Timber)

This para, presented matter-of-factly in the middle of a New York Times piece about the Repub convention bringing older strategists out of retirement, surprised more than, perhaps, it should

Paul Manafort, 67, all but disappeared from American politics in recent decades to advise international leaders, including strongmen like Ferdinand E. Marcos, the former dictator of the Philippines, and Viktor F. Yanukovych, the deposed former president of Ukraine. Now, though, Mr. Manafort, who worked for the Ford campaign 40 years ago, is the lead convention strategist for Donald J. Trump

Combined with the link back to Joe McCarthy, I feel a bit as if we have moved on to some alternative reality timeline (I remember a great one, where Nixon won in 1960, and an author is trying to pitch the actual history of the 60s as an alternate reality story – CT commenters advises that it’s Divergence, by Barry Malzberg).

A Royal Commission to end all (or most) Royal Commissions

In political terms, it’s hard to fault Labor’s call for a Royal Commission into the banking system. It’s a neat riposte to the government’s Double Dissolution trigger, the ABCC bill derived from the Royal Commission into trade union corruption, which spent $100 million to announce that it had discovered a handful of cases of petty corruption*, claimed to be “the tip of the iceberg”. (That was one of a string of Royal Commissions set up as political vendettas by the Abbott government, none of which found anything useful.) The hypocrisy of this effort, when we are daily bombarded with evidence of corruption in business, finance and the LNP itself is obvious, and the proposed Commission provides a convenient political hook. And doubtless there will be plenty of evidence of individual wrongdoing, real or alleged.

However, I don’t think this proposed Commission will be any more useful, in practice, than Abbott’s. The problem with the banks is not so much breaches of the rules but the rules themselves. What we need is another inquiry which, unlike the Campbell, Wallis and Murray inquiries is not run by advocates of financial deregulation.

The Royal Commission we should really have is one into Abbott’s Royal Commissions, taking the same nakedly political approach as those Commissions did. The Commissioners, the counsel assisting and the government ministers who called the Commissions should be questioned on the political understandings with which they approached the job, the waste of public money involved. With luck, that would deter any future use of Royal Commissions as partisan vendettas, and leave them to inquire into real issues of public concern, where the powers of Royal Commissions really are necessary.

Finally an observation and a question: Having been critical of the TU Royal Commission, I’ve tried to be consistent in the prediction that this one will be similarly ineffectual. Did any of those now arguing that we don’t need a Royal Commission into banking make the same observation about TURC?

* As far as I know, no union offical has yet been convicted of a corruption offence as a result of the Commission’s work, while at least four prosecutions have failed or been dropped. My guess is that the total number of convictions will end up below 10, and the total amount of money involved not much more than a million dollars. That’s a pretty appalling return for $100 million of public funds that could have been used to protect the community against armed robbers and burglars, not to mention white collar criminals.