Analysis of Local Minimum Wage Laws: Critical Essay

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Analysis of Local Minimum Wage Laws: Critical Essay

Issues

Employees

Employees are vastly affected by the changes in the minimum wage. This is because what they earn has a drastic effect on their living such as choices in financial expenses. Through the perspective of the employees, the standard economic model of supply and demand suggests that the higher the wages for a job are, the more of the workforce is willing to work the job thus increasing supply (McGuinness, Freebairn and Mavromaras 2008). Therefore, the conclusion can be made that employees would rather have higher wages.

Government

The Government is a key stakeholder when it comes to the minimum wage debate. It is the government’s job to ensure that both employers and employees are treated fairly. In their perspective they must operate as such in regard to employees so that the workforce is at a healthy level and that there is a low amount of unemployment (Card and Krueger 2015) – which will help the socioeconomic landscape as more individuals have access to a job which will provide them income in turn decreasing the poverty scale and also the economic landscape as there will:

Be more spending as individuals have access to more funds
More production in the economy due to increased employment.

Both of the above reasons will lead to higher economic growth.

Industrial Tribunals

The role of industrial tribunals as industrial relations stakeholders is to provide a platform to resolve disputes between employees and their employers in the workplace. The perspective of the industrial tribunals such as the Fair Work Commission when it comes to minimum wage is it enforces the minimum wage laws, introduced by the government. This ensures that both employees and employers are on the same path and one is not being treated unfairly than the other (Dickens 2008). This allows for less illegal activity to occur such as an employee getting paid below the minimum wage.

Employer Associations

The role of employer associations as non-profit organization industrial relations stakeholders is to support its member employers. These associations’ perspective on the minimum wage is to ensure that its members are up to date with the laws and make sure that they are being treated fairly in their industry (Barry and Wilkinson 2011).

Trade Unions

The role of trade unions is the perspective minimum wages to ensure the welfare of its employee members, trying their best to achieve the interests of its members in achieving higher wages by safeguarding economic benefits (Gumbrell-McCormick and Hyman 2013). Unlike Employer associations, trade unions provide support for employees.

Employers

Employers are affected majorly by the minimum wage debate. One of the key perspectives of an employer is to ensure that production and growth are in a positive state. This is done by ensuring all their resources which including labor are being utilized effectively. A set minimum wage can help keep the employer’s costs of production lower (Meer and West 2016). An increase in this causes a higher cost of production which could cause the employer to have to reduce their labor costs.

Analysis of Employers through the lens of sustainability

Economic

The economic lens of sustainability refers to the perspective of employers on minimum wage and how it affects their ability to keep sustainable growth in profit. As shown by the increases in the minimum wage in Australia recently, there have been increases in the youth unemployment rate. This means that more employers have had to let go of their lower-skilled employees to lower production costs. This links back to economic sustainability – employers have to look at how they can sustain profit and be building their business; and by saying that, paying more to their employees will do nothing but hurt that growth economically speaking.

However – through the perspective of an employer an increase in minimum wages increases the supply of workers willing to take the job for a more attractive wage. This means that for an employer actually looking for more labor, they will have it easier to come by and achieve this as more workers in the workforce are willing to take the cake. But on the other hand, employers may offset this increase in job competition between unskilled employees by reducing employee benefits or hours worked, whilst requiring employees to maintain high rates of production (Willard 2012). This reduced time of increased production puts strain on production; which can result in the production of inferior products or services therefore affecting the demand and decreasing sustainable profit.

Social

Employers must look through the lens of social sustainability in their workplace. This means that employers must act with wage changes in such a way that their employees have a healthy relationship with everyone in the workforce, show good morale, and actually want to be at work (Slaper and Hall 2011).

An increase in the minimum wage also increases employee ‘loyalty’. Workers will tend to remain with employers longer rather than seeking out jobs with better pay from other companies, which thus reduces businesses’ turnover, and costs of training, and also hiring, whilst increasing morale and healthy relationships between employers and their employees.

Increased wages also can tie along with more production and efficiency. Even if this makes no sense economically speaking, looking at this through a lens of social sustainability, if an employee is satisfied with their job which includes their wage; job performance is positively increased (Wright, Cropanzano, and Bonett 2007), which leads to more production and efficiency hence affecting the economic sustainability of the firm.

Position and Critique

Youth employees are one of the main groups of employees that are able to reap the benefits of a minimum wage. This is due to their inexperience in the workforce and therefore employers will be more inclined to pay them a lower wage as they have lesser experience than a more seasoned employee meaning the youth would be of less value to the firm.

There have been increases in the minimum wage as of recently in Australia; the current minimum wage is $19.49 per hour or $740.80 per 38-hour week (before tax) (Fairwork 2019).

However, the main issue is that with this increase in minimum wage every year, there have been continuous decreases in youth employment. There is consistently more youth employment with the following evidence being taken into account:

One-third of young people are either underemployed or unemployed. Having this much of Australian Youth unemployed costs the economy just over three-quarters of a million hours of loss of work every year which in turn causes 16 billion dollars AUD worth of lost GDP annually in the Australian economy [1]
In the past year, out of all the jobs advertised online only 0.5% were available as entry-level. [2]

The bottom line is that although the idea of raising the minimum wage to reduce unemployment makes theoretical sense, evidence shows that this has the opposite effect; unemployment is actually increased among the unskilled workforce. There are always exceptions however as some youths will benefit from the wage increase but as evidence suggests most will struggle and this will only increase their delay into the entrance of the workforce and in turn reduced income over the rest of their lives.

The Australian minimum wage has been increasing – this means employers will incur higher labor costs. The above evidence claims that there are been increases in employers under-employing the workforce (reducing the hours worked by individual employees) and also reducing their labor. Policies that raise costs of labor for employers can either increase the workforce employment in total or they can increase the total hours worked per worker, but they cannot, however, do both. The minimum wage as evidence shows, has caused employers to reduce employment within their business to sustain their profit margins thus increasing the unemployment rate amongst unskilled workers in the workforce.

Government should look to create policies that improve and increase opportunities for youth/low-income families while still not increasing the cost of employment for employers as this is one of the main reasons why increases in minimum wage cause unemployment amongst the unskilled and low-income workforce. Both objectives can be achieved through:

Policies that provide welfare payments to low-income/youth workers if their income falls below the rate of what it should be to prevent poverty (due to economic forces such as inflation). So instead of making the employer pay more to the employee, the government bridges that gap by providing welfare payments. This ensures that poverty is prevented while not having an adverse effect on employers.
Provide more support such as housing and food assistance.
Improved monitoring of minimum wage laws compliance
Providing better social safety nets for employees affected by an increase in the minimum wage.

It can be argued that some of these policies will cause their own issues such as people not choosing to work and just living off welfare payments however this will not cause a decrease in jobs and job opportunities.

In conclusion, the recommendation that this report gives is

not to change the minimum wage for 5 years. Instead as inflation increases and the cost of living increases – calculate how much exactly the minimum wage was to increase.

Instead of increasing the minimum wage:

bridge the gap between the current minimum wage and the prospected minimum wage using payments.

This will create more jobs for the future generation as well as low-income earners.

References

Wright, T.A., Cropanzano, R. and Bonett, D.G., 2007. The moderating role of employee positive well-being on the relation between job satisfaction and job performance. Journal of occupational health psychology, 12(2), p.93.
McGuinness, S., Freebairn, J.W. and Mavromaras, K.G., 2008. Characteristics of minimum wage employees. Australian Fair Pay Commission.
Card, D. and Krueger, A.B., 2015. Myth and Measurement: The New Economics of the Minimum Wage-Twentieth-Anniversary Edition. Princeton University Press.
Dickens, L., 2008. Legal regulation, institutions and industrial relations (No. 89). Warwick Papers in Industrial Relations.
Barry, M. and Wilkinson, A., 2011. Reconceptualizing employer associations under evolving employment relations: countervailing power revisited. Work, employment and Society, 25(1), pp.149-162.
Gumbrell-McCormick, R. and Hyman, R., 2013. Trade unions in Western Europe: hard times, hard choices. Oxford University Press.
Meer, J. and West, J., 2016. Effects of the minimum wage on employment dynamics. Journal of Human Resources, 51(2), pp.500-522.
Willard, B., 2012. The new sustainability advantage: seven business case benefits of a triple bottom line. New Society Publishers.
Slaper, T.F. and Hall, T.J., 2011. The triple bottom line: What is it and how does it work? Indiana business review, 86(1), pp.4-8.

Indices

Davidson H, 2017, ‘Third of Australian youth have no job or are underemployed, report finds, The Guardian, 27 March 2017, accessed via: https://www.theguardian.com/business/2017/mar/27/third-of-australian-youth-have-no-job-or-are-underemployed-report-finds
Foundation for Young Australians (FYA), 2018, Report reveals full-time work by 25 no longer a reality for 50% of young Australians, media release, FYA, Melbourne, 14 June 2018, accessed via: https://www.fya.org.au/2018/06/14/media-release-report-reveals-full-time-work-by-25-no-longer-a-reality-for-50-of-young-australians/