Symposium on Wages: Introduction

Abstract

With the ACTU's 'living wage' claim currently before the Industrial Relations Commission, this symposium is particularly timely. However, it is not confined to issues directly relevant to the 'living wage' claim. Two articles in the December 1995 issue of the Economic and Labour Relations Review are a good introduction to the symposium. The first of these by John Burgess, focuses on the way movements in wages are measured. Burgess points out that 'the analysis and interpretation of aggregate wage data has become more difficult' (p. 216). He gives five reasons for this: (a) falling award coverage, (b) the development and uneven spread of enterprise bargaining, (c) the industrial and demographic restracturing of the workforce, (d) the growth in non-wage benefits, and (e) the growth in non-standard employment. Burgess concludes with the warning that there is now no single wage series that can be used with confidence as an indicator of wage movements across the board. Increasingly there will be greater dispersion in wage rises and all aggregate wages series 'require careful evaluation and analysis before being interpreted' (p. 299). The second article, by David Plowman, gives a history of minimum wage determination and discusses legacies of that history which raise issues today. The two most important of these issues are the role of minimum wages in a decentralized system of fixing wage rates and the weight to be given to needs as against capacity to pay (including consideration of differences between men's and women's wages and price and productivity measures to be used in wage rate discussions). The symposium in this issue begins with two articles focussing on the effects of minimum wage rates on employment. That by Valentine sets out the traditional arguments supporting the conclusion that an increase in the minimum wage rate leads to a fall in employment. At the microeconomic level, with a rise in the minimum wage, substitution effects lead a firm to replace some unskilled labour with other classes of labour or capital. Also, as costs of production will rise, firms will reduce the level of production. The extent to which this occurs will depend on expectations about how much a higher price will reduce demand. Valentine also points out that a rise in the minimum wage will probably also have an impact on the supply of unskilled labour. It is likely to increase the number of housewives who enter the workforce and may lead young people to terminate their education earlier than they would otherwise have done. Also a rise in the minimum wage may reduce the extent to which unskilled workers upgrade their skills. When he shifts to look at the macroeconomic effects, Valentine is concerned to counter the argument that higher wages will lead to greater expenditure and hence higher employment. His most important argument is that, if the share of wages in income rises, that of profits must fall and this will have a negative impact on business investment Valentine then turns to an influential study by Card and Kreuger, which found that a rise in the minimum wage rates actually increased employment in fast food restaurants in New Jersey. He argues that the circumstances in this particular industry are such that changes in the minimum wage are likely to have less effect on employment than in many other industries, at least in the short ran. If a longer time had been allowed to elapse the study may have found more substitution of capital for unskilled labour. Valentine also queries the data collection procedures used in the study and concludes that the study 'gives economists no reason to revise their traditional view on this subject'. The second article, by Nevile, takes an opposing position on the effects of minimum wage rises on employment, but puts it in a wider context. After pointing out that trends to increasing income inequalities in Australian society increase the need to protect the incomes of low income families, it argues that it is very difficult for the taxation and social security system alone to do this. …