US example makes a mockery of Australia’s wage denialists

If the wage denialists in business, the government and at the Financial Review are going to make the case that there’s no need for action on wage stagnation, they’re going to have to do a little bit better than rehashing the claim that minimum wage rises — as proposed by Labor — cost jobs. It’s lazy and, more to the point, now debunked.

The Business Council’s Jennifer Westacott was out of the blocks this week claiming that wage rises will lead to business “sacking people” and that the minimum wage shouldn’t be increased because we’d “get a year or so of higher wages at the minimum wage end only to see job losses in two or three years time”.

The hospitality sector wants to slap a real wage cut on its workers. Scott Morrison repeated the business line, claiming Bill Shorten was “going to force small and family businesses all around the country to sack people, in order to possibly give some others a few more dollars”.

Morrison even called Labor’s talk of a higher minimum wage “a curse on small business and family businesses”. And at the very home of wage denialism, Labor was declared to be “completely wrong on the minimum wage”. A minimum wage rise would price workers out of a job.

Traditionally the issue of whether minimum wage rises increase unemployment has been dogged by a lack of empirical evidence. Three and a half years ago, the Productivity Commission argued “there are also ongoing disputes among economists about how minimum wages affect employment and poverty. Economic theory and some international empirical studies suggest that increases in minimum wages can reduce jobs and/or hours worked, but they also indicate that employment gains are possible in some circumstances.”

But several years on, the empirical data is in, and clear — minimum wage rises not merely don’t harm employment, they may even increase it. Much of the evidence comes from the US, which has a federal minimum wage of US$7.25 per hour. But states and even cities can set their own minimums, and in recent years many have increased minimum wages significantly. There are now 10 major cities in the US that have minimum wages between US$12-15.

The result? An academic study last year found “we cannot detect significant negative employment effects. Our models estimate employment effects of a 10 percent increase in the minimum wage that range from a 0.3 percent decrease to a 1.1 percent increase, on average.” In one of the cities, Seattle, the increase made a huge difference in the earnings of low-income workers.

But what about real workers, doing it tough in Trump’s America? For them, we can go to the great state of Arkansas, which in 2014 voted to increase the minimum wage there to US$8.50 — well above the minimum in the states surrounding it. Based on the logic of Scott Morrison, the Business Council and the Financial Review, that should have seen Arkansas employment growth slow below that of its neighbours. Except, the result was…

From 2014 to 2017, unemployment in the state dropped from 6 to 3.7 percent, for a total year-to-year decline of 38.3 percent. Only Tennessee experienced a larger decline in unemployment among Arkansas’ six neighboring states. Significantly, among the seven states, Arkansas and Tennessee tied for lowest unemployment in 2017… Arkansas hit its lowest unemployment rate since the agency started its current state unemployment data series in 1976.

So damaging was Arkansas’ flirtation with a higher minimum wage that last year Arkansans voted to increase the minimum wage again to $11 by 2021. Counties in neighbouring states are now lifting their minimum wages. And a number of other states have been doing the same. 

This, incidentally, completely demolishes the nonsensical line currently being run by the AFR that America’s recent wages growth, which has finally edged above 3% after several years of record low unemployment, has been because of Trump tax cuts (which in fact led to such massive share buybacks — $1 trillion and counting — that Republican Marco Rubio wants to curb them!).

An article in yesterday’s AFR claimed about American wage rises that “America has not adopted any of the top-down policies the Australian Council of Trade Unions is advocating.” But one US study listed minimum wage increases since 2013 alone in Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, Ohio Oregon, Rhode Island, South Dakota, Vermont, Washington, Washington DC and West Virginia.

One more thing. Pay attention to what Westacott said this week: “To get wages up you have to grow the economy. You cannot get wages to rise in a weak economy.”

So, suddenly we’ve had a weak economy for the last five years! When we’ve had some of the strongest jobs growth periods on record since 2017 and huge company profits — one of the few robust claims to economic management this government can make — that’s a weak economy that couldn’t afford wage rises? And the primary weakness that drove down GDP growth in the second half of 2018 was weak household demand due to… low wages growth. So Westacott must be saying there can be no wages rises because the economy is weak from lack of wage rises.

But, of course, according to business, it’s never a good time to increase wages, is it?