Hey hey FWA – how many jobs did you kill today?

The economic arguments in favour of the minimum wage are for all practical purposes non-existent. But our National Wage Case is an established ritual that will not be disappearing any time soon since it continues as the linchpin in our system of industrial relations. But for the system to work as it needs to, those who make the decisions have to understand in their bones that there are no good economic reasons for raising the minimum wage. It keeps many people unemployed who otherwise would have jobs. If anyone on the Fair Work Commission panel adjudicating this case believes they have a convincing and contrary argument to make, they ought to write it up and send it off to a journal. They would thereafter maintain an enduring fame as the person who showed that a higher cost of labour did not lead to a reduced demand for employees. Many have taken up that challenge, but no one has yet succeeded. It is something like the economics equivalent of squaring the circle.

Given that raising the minimum wage will cost jobs, the absolute necessity for those who make these wage decisions is that they balance the economic harm against whatever industrial relations peace it might bring. You cannot count on unions understanding any of this, but you would hope that the Commission does. With the first round of this year’s submissions having been submitted on Thursday, we will see all of this reach a peak sometime in June when the decision is brought down.

I mention all this for a second reason. I am, with Sinclair, on the editorial board of the Journal of Peace, Prosperity and Freedom whose third ever edition has just come out. As its editor, Sukrit Sabhlok, says, it is edited “by a graduate student (me) without administrative/marketing support”. He therefore adds that “letting your local libraries/databases know about print subscriptions would be appreciated”. He further adds that “the journal is the only Austrian economics, free market economics, libertarian academic journal in Australia.” So if you would like to subscribe, you can subscribe here.

And as one of many reasons to subscribe, let me draw your attention to the latest issue in which there is an article with the title, The Irony of the Minimum Wage Law: Limiting Choices Versus Expanding Choices written by the extraordinarily eminent Walter E. Block (PhD, Columbia University), the Harold Wirth Eminent Scholar and Professor of Economics at Loyola University New Orleans, whose co-authors are Robert Batemarco and Charles Seltzer.

Here is the abstract, whose contents will be of no surprise to anyone who understands economics, or indeed to anyone who possesses an ounce of common sense.

Persistently high unemployment among specific sub-groups, namely teenagers, African-Americans and workers with low skills has been a serious problem in the United States. In this paper, we trace a large portion of that problem to the existence of minimum wage laws that have been in force nation-wide since 1938. These laws remain popular despite their adverse effects because of a lack of economic understanding among the general public. In this paper, we aim to make clear even to those without advanced economic training why the minimum wage law is not a viable solution to the problems of those its proponents purport to help, but rather a cause of worse problems for them. Our method is to use elementary economic logic to show that the minimum wage must harm many of those it is claimed to help by costing them their jobs and to review the data to show that it always has harmed them. Our conclusion is that minimum wages have not achieved their putative goal, but have served the ulterior motives of limiting the competition faced by labor unions. Our recommendation is to repeal minimum wage laws, and failing that, to at least lower their rates, and in their place to help low-skill workers by reducing the barriers to their receiving enough education to raise their marginal revenue product so as to permit them to earn higher wages in a way that does not remove their employment opportunities.

As for the title, I know I am using the Commission’s now discarded name, Fair Work Australia, but then if I used its real name, it wouldn’t rhyme. I, of course, trust that you will know what I mean. But will they?

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