Russ Roberts at Café Hayek has put up this post about the Australian labour market. I will write to him myself but I am curious if there are any other thoughts he might find of interest.

But the legacy from the years of surplus inherited by these absolutely hopeless economic managers, plus the quite extraordinarily good monetary policy in Australia, plus the mining windfalls that have now been dissipated have all contributed to the labour market outcome. And of course the unemployment rate started at 3.9% when the GFC began which rose to 5.8%, so 5.4% is quite an increase since then and there has been hardly any genuine improvement and is now getting worse. Not to mention the fall in the participation rate which has helped keep the number under six percent. Anyway, this is from Russ Roberts.

A number of people have asked me (Russ) about Australia’s minimum wage. It’s $15.96 an hour. Yet the unemployment rate in Australia is only 5.4%. The implication is that maybe the minimum wage doesn’t have the effects it is alleged to have.

Could be–maybe the laws of economics don’t apply to Australia. Or maybe the laws of economics don’t apply in countries that start with an “A.” Or maybe the world is a complicated place and you have to think carefully about how it works.

My first thought is to wonder how the minimum wage is enforced. Does it apply to all jobs? I know it doesn’t apply to all ages at the same rate–younger workers confront a lower minimum wage:

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.

But still, every one over 20 years of age earns at least $15.59 per hour? Shouldn’t that lead to more unemployment than 5.4%?

I would think so, given my understanding of Australian standards of living. And if the law applies to everyone and is enforced. Is it? I don’t know. Here’s what the government web page for the Australian minimum wage say:

The national minimum wage acts as a safety net for employees in the national workplace relations system to provide minimum rates of pay for employees not covered by awards or agreements. National minimum wage orders are made by the Minimum Wage Panel of the Fair Work Commission.

Hmm. What is an award? Here’s some help:

How to find an award

Which modern award (or other arrangement) am I covered by?

The 122 modern awards replace thousands of federal and state based awards, so finding your modern award can be complex. It will depend on factors including the relevant job type and duties, any exclusions that apply in the modern award and what your previous federal or state award (pre-modern award) was.

You’ll need to know which award covers you to use many of the tools on this website.

To work out your pay rates, you will most likely need to know both your modern award and your pre-modern award. There are a number of ways you can locate your modern award:

use our online tool Award Finder
browse our A-Z of modern awards
use the Fair Work Commission (the Commission) Draft Awards audit spreadsheet

One thing I’ve learned. I don’t know enough about Australia’s labor market regulations but it doesn’t appear to be anything remotely like what we call a market here in the US.

And it turns out that unpaid work is on the rise among young people in Australia–what we call an internship here in the US–a way of avoiding the minimum wage–somehow the minimum wage applies unless you pay ZERO. In which case it’s OK.

Here’s a charming excerpt from a recent government study of unpaid work:

The report extrapolates that, if the trend in unpaid internships is left unchecked, it is likely to gather pace as it has done in other countries like the United States, where employers are forced by their competitors into a ‘race to the bottom’. However, the report also notes that concern about unpaid work arrangements, especially as they impact on young people, has become a focus in other developed economies in recent years, especially since the Global Financial Crisis. In the United Kingdom, for instance, the present government has made a concerted effort in recent years to end any exploitation and to ensure fair access by all to the labour market.

Do we have some Australian readers who can tell us more about the Australian labor market?

…

A Free Market Defence of Industrial Tribunals: I just might mention my Quadrant article on our industrial relations system. A partial sense of what it argues.

I spent a quarter of a century in the middle of Australia’s industrial relations system working on behalf of national employers and can tell you from close observation that we in Australia have developed quite possibly the best industrial relations system in the world. I need hardly point out that very few others see it that way, but having the best system and some of the worst unions is quite a combination. The example I used to give to demonstrate the relative virtues of our system in comparison with others was that at the same time Rupert Murdoch was setting up his Fortress Wapping in the UK to allow him to bring new technology into the newspaper industry, he made the same transformation in Australia without, so far as I am aware, as much as a minute of lost time.

This really could not be better said. From The Australian

In a separate development yesterday, the Coalition’s workplace relations spokesman, Eric Abetz, pledged that an Abbott government would not introduce any legislative changes to the operation of penalty rates, a move that was also aimed at negating Labor and union claims that the pay of workers would be cut by the Coalition.

Senator Abetz said penalty rates would remain the ‘province of the independent umpire, the Fair Work Commission’.

If they use the Commission properly and restructure the law there is little more than could be asked and there is little more they need to do. The Fair Work Act has been a disaster and needs to go but it has to be gotten rid of with a great deal of care and good sense. But they need to leave the Fair Work Commission in place. I am encouraged that this really could become one of the great reforming governments of Australian history.