AFR: Why minimum wages are a fantasy

You can read the original article published in the Australian Financial Review on 20 March 2019 here or you can read the full text of the article below. 

The minimum wage is a fantasy. Anyone who promises to raise it is sewing baubles on to the Emperor’s new clothes.

It is a fantasy, because workers regularly accept less than mandated minimum wage or conditions to hold some jobs. And they count themselves lucky to do so. The ACTU can’t change that. If we are sincere about raising wages, we must ditch the fantasy and look for policy levers that actually help.

The real minimum wage is the effective hourly rate workers show up to work for. The gap between that figure and the mandated minimum wage is how much the benefits – direct or indirect – of holding the job are worth to them.

Some jobs are more fun than others. Some confer status. Some people choose to work in fields which give them a sense of purpose. And some are a means to an un-job-related end.

A friend of mine likes to point out that it’s poor career advice to follow any profession that looks sexy on TV. Chances are, so will many others. Competition will be fierce and wages will suffer. Adam Smith nailed it nearly 250 years ago, when he pointed out that, “In the advanced state of society … they are all very poor people who follow as a trade what other people pursue as a pastime”.

The success of Mad Men, the racy TV series about the advertising industry, contributed to the number of people wanting to get into the industry and pushed wages right down. The average annual wage of an advertising account executive is $53,000, an hourly wage a bit over $24. But the expectation is that account executives work far longer hours, depressing the effective hourly rate well below that – easily below the official national minimum wage in some cases.

Unpaid internships

Not only do many people accept these terms, they’ll even do unpaid internships to secure them. And if a percentage decide the job isn’t worth the pay, they are quickly replaced by a new cohort of eager graduates who’ll count themselves lucky to get the role. The difference between the minimum wage and their effective hourly rate is what it’s worth to them to be in that job.

NSW Opposition Leader Michael Daley doesn’t have to worry about falling below the minimum wage, even if he works 24 hours a day, 365 days a year. But to show us how much he wants the job of Premier, Daley has taken to boasting that he works from 5:30 in the morning, averages six and a half hours’ sleep a night, and has only had two days off over the last four months. This is expected in politics, especially around campaign time, but clearly exceeds the average of a 38-hour week stipulated by the Fair Work Act. He really wants that job and he’s happy to effectively reduce his pay and conditions to get it. And, of course, because Gladys Berijiklian really wants to keep the job he’s gunning for, she’s forced to do the same. That’s just what it’s worth to them.

Adam Smith predicted the effect. In his day, singing, acting and dancing were considered low status – “a sort of public prostitution”. This kept wages high for people in those professions. But, he wrote, “should the public opinion or prejudice ever alter with regard to such occupations …more people would apply to them, and the competition would quickly reduce the price of their labour”. You don’t need to tell that to an Uber-driving actor.

Systematic and deliberate

Sometimes the deals people make can sound uncomfortably like coercion. In 2015 a Fairfax-Four Corners investigation revealed that workers at some 7-Eleven franchises were being paid half the $24.50 award rate. The underpayment was systematic and deliberate, with payroll records and timesheets doctored. The employees were international students, who wanted to stay in Australia. They needed to earn money somehow and feared reporting the below-award wage conditions would lead to their visas being cancelled. That’s a terrible situation to be in, but is it so different from the unreasonable hours put in by an advertising executive or a politician? It wasn’t slavery; they were free to go. We know exactly how much it was worth to the 7-Eleven workers to stay in Australia: $12.25 an hour.

We’d all like to have higher wages and better conditions. But our actions reveal what we are willing to accept.

Slow wage growth is frustrating Australians, so policy makers have to look at what they can do. Breaking our university addiction might help. Changing attitudes to employment might, too. “The trade of a butcher is a brutal and odious business,” writes Smith, “but it is in most places more profitable than a greater part of common trades.”

The quickest way to raise wages is to do more of what other people can’t or don’t want to – as individuals and as a nation. The choice is ours. You can’t legislate to change the truth.

AFR: How the Liberals lost in 2019

You can read the original article published in the Australian Financial Review on 4 March 2019 here or you can read the full text of the article below. 

The Rudd government’s spectacular implosion and dysfunction fooled the Liberals into thinking they didn’t need to update Howard’s political formula.

Twelve weeks out from an election is a hell of a time to discover your long-standing commitment to addressing climate change. It doesn’t leave much time to develop a coherent policy or to sell the electorate on it. But needs must when a ferocious culture war has left your party platform in tatters and the enemy unscathed.

We all love to shift blame, so let’s say that, in a way, it really is all Labor’s fault.

Back in 2007, when the Australian people finally got sick of voting Liberal and decided to shake things up, the party was well due for a time in opposition. Even the most successful organisation needs to think about its purpose and set a new horizon after a decade. And the Liberal Party’s moral and economic vision, distilled over time into the personality cults around John Howard and Peter Costello, had just walked out the door.

Some people, including former Reserve Bank governor Glenn Stevens, like to argue that voters had it so good in that decade, they became complacent. That may be so. In the 2000s, visiting Australia from a Germany in the throes of doing the economic hard yards was like visiting a cargo cult society – the wealth kept pouring onto the island and the enriched locals firmly believed it was due to their own actions.

The Liberal Party had become complacent as well. The tempering influence that its conservative and liberal impulses exert on each other had given way to an indulgent big government conservatism. Many supporters now regret the welfare largesse of the latter years, if not the relaxed and comfortable prosperity that recommended it. One way or another, it wasn’t a plan. Conservatism, to paraphrase Hayek, does not contain the means of advance.

When Labor won on a platform of more of the same, just nicer, few people expected the chaos that was about rock the world when the financial system melted down. And no one dreamed that chaos would attack the new government from the inside, when Kevin Rudd lost the confidence of his party, the leadership, and then his dignity in a dramatic cascade of overthrow and vengeance.

A bitter victory

In the circumstances, it was quite reasonable for the Liberal Party to put philosophical renewal aside in favour of a fresh tilt at power. The first skirmish of the party culture wars under Tony Abbott and Malcolm Turnbull had been settled in Abbott’s favour and there was no time to keep talking with a winnable campaign ahead. The clear message of the Abbott assault was that the Liberal Party would put things back the way they had been, when life was good. No more boats, no carbon tax, no more helicopter money and no more national debt.

The reset pitch succeeded on the second try and the Liberal Party returned to power in 2013. It has proved to be the bitterest victory of all.

Two electoral cycles spent campaigning left no appetite for destabilising internal debate on where the Liberal Party should take the country, so it was stuck with a backward-facing position. The tightrope between conservatives who must recognise the value of individual freedom, and liberals who must recognise the cautionary principle of conserving what has been carefully built, was never restrung. The Liberal Party has governed for two terms without this guiding thread.

The unresolved tension has turned into an internal culture war that has ripped down policies and prime ministers. In 1993, a generation learnt that policy lost out to politics when John Hewson’s Fightback crumpled. In 2013, another generation had the same lesson hammered home. This year will test the power of campaign tactics to paper over the void. It looks like the void will win. Legendary ad man Harry McCann called good advertising “the truth well told”. Cynical as the telling may be, there has to be a truth to sell.

The Labor Party deserves credit for learning from its mistakes and the mistakes of others. It is making a valiant effort to put forward a vision for Australia and present a coherent suite of policies. Whatever you think of the substance of individual policies, or even the overall direction, the attempt to lay out direction for the country and win on ideas is laudable.

It may be that the Labor Party will win the coming election despite its vision and policies, rather than because of them. It’s arguable that Liberals won in 2013 because voters were punishing Labor for overthrowing two prime ministers without electoral sign-off. It’s also possible that voters have hardened against the Liberals for the same reason, and couldn’t care less what it does about climate change.

One thing is for sure: the country will be better off if the political class takes the lesson that it came down to policy. If they’re not standing for a purpose, they’re just campaign puppets with perks.