Should Aussies be Paid < $2 a Day? How About Americans?

From an LA Times story last week:

"The world's richest woman, Australian mining tycoon Gina Rinehart, drew international scorn recently after saying that people who are jealous of the wealthy should drink less and work harder.

And now she's back with some more helpful advice.

Speaking at the Sydney Mining Club, Rinehart said her country's mining industry couldn't compete with nations that are willing to pay workers less than $2 a day for their sweat and labor.

The implicit suggestion: Employers should be free to pay workers whatever they please.

This echoes Rinehart's earlier to-do list, in which she urged Aussie lawmakers to cut the minimum wage so that, well, she wouldn't have to spend so much money on things like workers' salaries and benefits."

While the author of the story clearly wasn't a fan of the proposal, there is of course some core economic sense to it. If wages were lower than they currently are, mining companies in Australia could clearly hire more people with the same outlay of cash.

Now, whether they would and whether the price Rinehart quoted would be enough incentive for many people to get out of bed everyday, or is higher than any unemployment insurance scheme benefit the government runs, or indeed is enough for individuals to live on are different matters. Additionally, Australia's unemployment rate is comfortably down around 5% right now which, while there are some signs of job seeker frustration, is relatively low in a global/historical context. That being the case, it is not clear that there is a broad structural problem which needs to be addressed via the removal of a price floor.

However, the United States is in a different situation entirely. Unemployment is high (over 8%), and real unemployment is very high (one can pick from a number of estimates, but it is at least in the high teens). In the US, it could well be that wage floors are restricting some people from working at certain jobs at certain prices below the current minimum wage, at least in the short term. Now, the same arguments which arose above should rear their heads again; removing a floor could push prices (temporarily at least) to levels which would fail to induce applications, unemployment benefits might make a job at a few dollars an hour unattractive and it could easily be argued that minimum wage, never mind something less is not a living wage.

However, there could be some number below the current minimum of $7.25 (somewhat higher in some states) which could both allow employers to add individuals to payroll and which would be attractive enough to workers to get them working at least part-time. Whether this would be to supplement the wages of a spouse or partner, be a means of filling the gaps where government programs don't meet needs, or just get off the couch, this could be a benefit to individuals and society.

Now, this is very, very unlikely to happen, and most would agree that the employment problems America faces are much more complicated than a falling minimum wage floor could fix. That said, it is slightly irresponsible journalism to suggest that there is no economic sense behind reducing wages in a low-employment economy. Those wishing to do so could even logically and intelligently make the point that it is a poor idea while acknowledging the economic sense laid out above.

No comments:

Post a Comment