It’s Complicated: Oz minimum wage edition

By Eric Crampton 18/02/2013


Hey, Australia has a high minimum wage and low unemployment! Why can’t America have that too!

Well, it’s worth looking a bit beyond the headline rates.

Now I could have a whole lot of this wrong; I sure am not an expert on Australia’s Byzantine labour awards system. Go find Judith Sloan over at Catallaxy Files and ask her if you’re really keen. But here’s my rough take.

Recall that economists worry most about disemployment of young workers just starting out – for them, a high minimum wage will be binding. Or it’s most likely to be binding there. That’s why people keep studying effects on youths.

Here are some of the exceptions to Oz’s national minimum wage.

First, there’s blanket exemption for youths. Sixteen year olds are paid half the adult minimum wage; things ramp up by age after that. Apprentices are on another schedule.

National minimum wages for apprentices, juniors & trainees

Special national minimum wages have also been set for trainees, apprentices and juniors who are not covered by any other award or agreement. These apply from the first pay period on or after 1 July 2012.

For junior employees, the minimum rates are:

  • Under 16 years of age  $5.87
  • At 16 years of age   $7.55
  • At 17 years of age   $9.22
  • At 18 years of age   $10.90
  • At 19 years of age   $13.17
  • At 20 years of age   $15.59.

For apprentices, the rates are:

  • Year 1 of apprenticeship $10.22
  • Year 2 of apprenticeship $12.08
  • Year 3 of apprenticeship $14.87
  • Year 4 of apprenticeship $17.65.

What about other groups we might expect would be ruined by high minimum wages – those with disabilities that affect their job performance? They’re exempt too. If you’ve a disability and you’re assessed as being 70% as productive as other employees, you get 70% of the minimum wage. And if you work in a sheltered workshop, there’s another system that applies other lower minimum wages.

So if you’re all rah rah rah, America needs to have a high minimum wage because Australia does, then you also might consider having a youth minimum wage that scales from a much much lower rate. Or at least mention that one reason the Oz system doesn’t end up killing youths’ employment prospects is because youths are exempt from the worst of it.

For youths who are covered by one of the ridiculously complicated national awards categories, there are specific proportionate clauses for youths. So take cleaners, for example. The standard minimum wage for adult Level 1 workers is $15.96. But a 16 year old gets 47.3% of that. A first year apprentice is paid 55% of the minimum wage. If you have a disability and your assessed capacity is 50% of other workers’ capacity, you get 50% of the minimum wage provided the minimum amount isn’t less than $76 per week. There’s a separate minimum wage schedule for those who are completing traineeships and working as part of that, and the pay depends on both the highest level of schooling completed and how long it’s been since you dropped out. The earlier you dropped out, and the more recently, the lower the minimum amount of pay. So a school leaver who completed Year 10 gets $8.96 instead of $15.96 as a part-time traineeship.

So:

  • Matt Cowgill really should point out that if the US wants to follow Oz, it really needs to add in alternative and lower minimum wages for groups most likely to suffer disemployment effects of high minimum wages.
  • New Zealand’s adult minimum wage is lower than that in Oz, but the minimum wage for a 16 year old here is way higher than the minimum wage in Oz. And NZ knocked out the differential lower minimum wage paid in sheltered workshops. The unions here said it was horrible to pay youths 80% of the adult minimum wage; in Oz, it’s as low as 50% depending on the age.
  • I’m not sure that raising US minimum wages from 38% of the median full time wage will have that huge a disemployment effect; I’d be pretty surprised if it were noticeable. But I’d bet on effects if they start getting into the 45% and up range if they don’t couple it with exemptions for vulnerable groups.
  • If Obama wants to index the minimum wage, he should index it to some fraction of median wages rather than to the CPI. At least if he wants monetary policy to be able to affect employment by cutting real wages at the bottom.