There has been a lot of vacuous sound and fury on the recent Fair Work Commission (FWC) decision regarding penalty rates. And much of the vacuous sound has been coming from the Federal Opposition.
Really. What will it take for the ALP to support such a determination? Perhaps a political donation to the parliamentary party by the FWC? How about channelling all FWC employees to an ALP or Greens recruiter. This seems to work for the unions.
But worse than reaction of the opposition, is the complete ineptitude of the government to explain not only the detail of FWC decision, particularly the transition arrangements, but also the benefit of the decision, particularly more jobs, more growth, and yes, better pay. You know, jobs and growth.
The most insidious part of the current penalty rate arrangement is that it penalizes small businesses and rewards large. This is because small businesses don’t have the scale or infrastructure to negotiate away weekend penalty rates via enterprise agreements as have Coles and McDonalds. The local fish and chip and burger shop has to pay more for its labour on a Sunday than does the McDonalds next door. So much for comparative wage justice or even basic equality under the law.
The likely reason that the business lobby has not come out in support of the FWC determination is not because they are scared of a union campaign. It is likely because the business lobby should more accurately be known as the big business lobby, and the maintenance of high penalty rates is great for big business because it hurts their smaller competitors disproportionately.
But penalty rates are not just a distortion between big and small businesses; they are distortion between working and not working peoples. You see, penalty rates are an appendage to the minimum wage regime, and evidence has well shown that minimum wages are an employment destroyer. For those who don’t believe that minimum wages hurt employment, they should stand up and argue for a $200 or $500 per hour minimum wage.
Prominent economists and historians have also shown that the origins of the minimum wage were not about social justice but rather racial bias.
Well noted US economist Thomas Sowell wrote in 2013:
In 1925, a minimum-wage law was passed in the Canadian province of British Columbia, with the intent and effect of pricing Japanese immigrants out of jobs in the lumbering industry.
A Harvard professor of that era referred approvingly to Australia’s minimum wage law as a means to “protect the white Australian’s standard of living from the invidious competition of the colored races, particularly of the Chinese” who were willing to work for less.
In South Africa during the era of apartheid, white labor unions urged that a minimum-wage law be applied to all races, to keep black workers from taking jobs away from white unionized workers by working for less than the union pay scale.
Let’s repeat the reference to Australia for those who missed it.
A Harvard professor of that era referred approvingly to Australia’s minimum wage law as a means to “protect the white Australian’s standard of living from the invidious competition of the colored races, particularly of the Chinese” who were willing to work for less.
Equally well noted US economist Walter Williams wrote just late month:
During South Africa’s apartheid era, racist unions, which would never accept a black member, were the major supporters of minimum wages for blacks. In 1925, the South African Economic and Wage Commission said, “The method would be to fix a minimum rate for an occupation or craft so high that no Native would be likely to be employed.” Gert Beetge, secretary of the racist Building Workers’ Union, complained, “There is no job reservation left in the building industry, and in the circumstances, I support the rate for the job (minimum wage) as the second-best way of protecting our white artisans.” “Equal pay for equal work” became the rallying slogan of the South African white labor movement. These laborers knew that if employers were forced to pay black workers the same wages as white workers, there’d be reduced incentive to hire blacks.
South Africans were not alone in their minimum wage conspiracy against blacks. After a bitter 1909 strike by the Brotherhood of Locomotive Firemen and Enginemen in the U.S., an arbitration board decreed that blacks and whites were to be paid equal wages. Union members expressed their delight, saying, “If this course of action is followed by the company and the incentive for employing the Negro thus removed, the strike will not have been in vain.”
Our nation’s first minimum wage law, the Davis-Bacon Act of 1931, had racist motivation. During its legislative debate, its congressional supporters made such statements as, “That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.” During hearings, American Federation of Labor President William Green complained, “Colored labor is being sought to demoralize wage rates.”
In both case, a regulatory intervention in the guise of helping people was actually based on helping a politically powerful group at the expense of a politically weak group.
The basis for the Australian minimum wage dates back to 1907 to the Harvester judgement where Judge Henry Bournes Higgins KC determined that that wages should be based on the cost of living for a worker and his family. Not profitability or productivity, but the cost of living.
110 years later, a business operating in a competitive and often global market place, should not have a mind to productivity or profitability or geography when negotiating salaries, but rather the cost of living in major metropolitan cities. A business in regional Tasmania has to pay the same minimum as a business in inner city Sydney as a tourist business in Queensland. This all despite different local economic conditions.
The minimum wage and penalty rates destroy the employment opportunities for those it claims to protect – the vulnerable, the low educated, those in the regions, low-skilled immigrants and others of disadvantage. Is this fair? What is the view of the fairness fairies to this?
But here is the thing. The other problem of the minimum wage, in addition to destroying employment, is that it is an outsource of social policy from the state to business – a recipe for disaster.
If there is a social need for a level of income based on the cost of living for a worker and his family, that is a matter for the state not the business. This can well be achieved through the existing tax and transfer system or, god forbid, the introduction of a negative income tax.
Whilst the idea of a minimum wage is to (try to) guarantee a living wage to all workers, it is instead guaranteeing a minimum cost to employers. This is because the minimum wage is set at the job level and not the worker level. There is no means test for qualifying for the minimum wage. The wife of a billionaire could, if she chose, to work in a minimum wage job this displacing a school leaver. Again, where are the fairness fairies?
There needs to be a better way that to keep people unemployed and businesses from opening so as to keep others occupied.
But for those who suggest that Australian business is concentrated because of (small) scale, perhaps they need to look at the scoreboard. Much of Australia’s business is concentrated because of regulation providing significant barriers to entry returns to scale. From industrial relations to financial services licensing to AML-CTF/KYC to gender and diversity reporting to you name it. For nearly every nook and cranny of business, there is a regulator and a regulation.
If you want to run a business in Australia, make sure you are big enough so that you can amortise the cost of compliance, compliance officers, industrial relations officers, external compliance advisors and external lawyers. And don’t forget lobbyists and political donations. You need to also comply with the latest and greatest from our regulatory masters, the social license, whatever that is and however it is designed beyond the caprice of the regulatory mandarins. There aren’t too many small businesses who can wear these costs or are prepared to carry the regulatory risk.
But worse than the regulatory returns to scale, it is the offensive benefits to scale offered by the Australian industrial relations system. Apparently, if you are big enough, you can pay your employees less on weekends than the small business down the road.
Who will defend the right of big business to pay employees less than small business? The union movement and the ALP. But who will defend the right of small business to pay employees the same as big business? The supposed “party of business”? Perhaps in another time.
The triumvirate of big labour, big business and big government, the unholy trinity rides again. How’s that for social justice.