Do we need to raise the minimum wage to alleviate poverty?

Ross Greenwood speaks to the Director of Hilda Survey, Professor Mark Wooden, who says increasing the Newstart allowance will have more of an impact on alleviating poverty, than raising the minimum age

Ross Greenwood: Great to have your company here on Monday news right around Australia. You may be aware in the last little while that the Australian Union Movement, the ACTU is calling for a $43 a week rise to the minimum wage, so that pay rise would be 6%. What they’re saying is that they want that to be the only the first step in a two-year push as they’re calling it to create a so-called living wage. What they’re trying to do is to get minimum wages to a point at which they basically are more than just shall I say a subsistence style of income for a person who is transitioning maybe from one job to another or indeed is actually on that lower pay scale.

Also on top of that then moves to the next stage and that is trying to make it something that they can live upon. More work has now been done by the Melbourne Institute of Applied Economic and Social Research. This comes from the survey that they do on a regular basis which is called the HILDA survey, the Household Income and Labor Dynamics in Australia survey. This particular survey shows that maybe just giving more paper to those people on minimum wages would not necessarily work. The reason for it because they’re saying that the bottom 20% of employees in terms of their hourly pay are as likely to be living in the richest 20% of households as they are in the poorest 20% of households.

Get your head around this so, in other words, it’s obvious that either adolescents or kids but not really young kids because they took those out of this survey. Maybe people with a second job that they might be living in very wealthy households, but there’s likely to be in those households as those living in the poorest of these. I thought it really interesting to try and examine what is going on here, and the director of that HILDA Survey is Mark Wooden who’s online right now. Many thanks for your time Professor Wooden.

Interview with: Mark Wooden, Director, HILDA Survey

Professor Mark Wooden : My pleasure.

Ross Greenwood: Okay. Can you explain the dynamics of this because of a lot of people, we’re sitting here scratching their heads going, “How could that possibly be?”

Professor Mark Wooden: It’s pretty simple. Minimum wage workers are found everywhere. I think my wife might be pretty close to a minimum wage worker, but she’s married to a fairly wealthy university professor, so clearly she’s not living in a poor circumstance. The problem with minimum wages is that one of the many problems, they’re a very bad tool for doing anything about poverty. Yes, some people who are low paid are going to be at the bottom, but some people low paid are at the top and many are in the middle. There found throughout the income distribution. That’s the problem. Compare them for example with the unemployed, they’re nearly always at the bottom, but some unemployed also live with wealthy people too.

Ross Greenwood: In other words, just to get my head around this. Let’s take your example but it could be mine as well. That is that in your particular case if there were an increase in the minimum wage notwithstanding that your household would be amongst the top quartile or top 25% of households in terms of income in Australia. The fact of the matter is that you would benefit as a household if your wife in your circumstances were to get an increase in that minimum wage.

Professor Mark Wooden: That is right provided she doesn’t lose her job or provided she doesn’t get her hours cut. Now she is a part-time worker. You tend to find that the problem with the minimum wage is people think of it that there’s a weekly rate, and even the Fair Work Commission says it’s X dollars per week. The reality is all they’re actually adjusting is the hourly rate. They can’t actually determine how much you’re going to make in a year. That’s a function not just of the wage rate but how many hours you work a week, how many weeks you work in the year.

We’ve also done with HILDA survey in the past, we find that many of the people at the bottom get– we see them one year the next get very big hourly increases in their pay, but their annual pay doesn’t increase by that much at all. That’s because presumably changes in hours and changes and in weeks work. I mean lots of the people on the bottom are underemployed. We know a lot about the under employment and so maybe that will get worse and that means fewer hours that means less income.

Ross Greenwood: Okay, so one of the things here that’s really important because a trend that has occurred and has been picked up in your survey that I’ve spot in the past is the increasing proportion of dual income families. There are more women in the workforce, we know that as a matter of fact, but the second thing is with very significant mortgages and costs especially in our major capital cities. Many women and or other partners have chosen to go into the workforce simply to be able to make ends meet. That’s what that minimum wage or close to the minimum wage might actually do for a household.

Professor Mark Wooden: This long term trend that’s been a big increase in dual income houses that goes way back and that’s when women were entering the workforce. You’re probably right that many people were taking on buying– to get in the housing market particularly in the big cities, Melbourne and Sydney in particular. They’re going into debt a lot. We know that, and therefore they’re desiring big increases in income.

I’d still doubt that the minimum wage is having much effect on this at all. Of course, the other thing you got to remember is that when I say, “I’m going to increase the minimum wage,” I’m not sure exactly what they mean. When they make a wage increase, only a small proportion of the workers who get this increase are on the minimum wage. What about all the rates above that?

In Australia, unlike almost any other country in the world, we don’t have one minimum rate. We have hundreds. Every award is 120 plus of those has multiple classifications. They all have their own specific rate. Throughout history whenever they increase the minimum wage, they increase all minimum award rates. We’re not talking necessarily just about the guys who are on $18.93 an hour. Today, it’s also the guys earning $20 an hour, $25 an hour, $30 an hour. In fact, I believe, though I don’t know for sure, there’s a minimum award rate for professors. It’s ridiculous because we have an enterprise agreement that puts us way above that, but there are all sorts of minimum rates. It’s very unclear what they mean by a $43 a week rise. Do they mean it’s $43 a week just to the bottom? If they do, but what about the guys above them?

Ross Greenwood: You’ve argued here though, and yes, I think it’s really interesting that if you want to address poverty in Australia or those people who really are struggling in our nation, you should actually go back and look at the Newstart Allowance because the Newstart Allowance really is, if you like, the ability for a person to get from one job to the next job and to be able to continue to put at least some food on their table. What we do know is unlike the age pension, it hasn’t been linked to average wages over a period of time. As a result, it really has fallen behind in real terms.

Professor Mark Wooden: No, not in real terms, it’s linked to inflation the CPI, but over time, the CPI has not been going up by as much as earnings until recently. In the last five years obviously the two are moving pretty close together. You’re right, if you’re thinking of the– if someone is fortunate enough to have a minimum wage job, to have a job, and to have 52 weeks a year and 38 hours a week then they’re going to be getting the $38,000 roughly 37, 38 thousand dollars a year on that salary, but what does Newstart guys get?

I mean they’re earning only a little bit more than $300 a week if that. Okay, so far lower. We’re talking about workers– the ACTU is about workers minimum wage workers not being able to afford to live. I don’t know what disability support pension is doing. I don’t know what Newstart people are doing.

The other thing we’ve got to remember is while we’ve got the wage, for people in need usually it’s not the singles. The singles have $719 a week is not great but it’s okay. If you’ve got lots of kids, a wife, et cetera who’s not working, then your needs are greater. We address that in our income system already with family tax payments. I mean people on low incomes can probably expect through Family Tax Benefit Part A and Family Tax Part B up to another $15,000 a year and that includes some of these low wage workers. I think they’re kidding themselves when they’re saying that a full time full year minimum wage worker is below the poverty line. I mean just can’t be. The poverty line is about 10% and these are mostly households where nobody is working.

Ross Greenwood: The final part of this that you point out and I think this is real is that a person is still significantly far better off with a job than without a job and that’s the key because if all of a sudden we start to have an unemployment rise, we do get the genuine hardship come through our community. While people have got jobs, even though they might think that they want more work or that they’re struggling to make ends meet, it’s certainly a significantly better thing than not having a job at all.

Professor Mark Wooden: Jeremy, that’s right. If you’ve got a foothold in the labor market, you potentially can move up the ladder. A lot of people are trapped but not everyone is. Plenty of people in the HILDA survey are increasing their wages year to year but it’s not from staying in the same job. They’re getting increments, they’re getting re classifications, they’re getting promotions, they’re changing to new jobs. Not everyone is struggling as much as the media would have you believe.

Ross Greenwood: I tell you what, great to have you on the program. The director of that survey, the Household Income and Labor Dynamics in Australia. The HILDA survey, one of the most important that we have in our nation to assess just the state of how finally the family finances are proceeding. Professor Mark Wooden, I appreciate your time.

Professor Mark Wooden: Okay. Thanks then.

Image source: 2GB

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