Minimum wage laws and wage regulation: Do changes to a minimum wage affect employment levels?
Date of this Version
In the recent Australian debate surrounding the Commonwealth government's introduction to changes to the federal Workplace Relations laws ('WorkChoices'), a good deal of comment centred on the issue of the minimum wage. It was argued by opponents of the changes that the creation of a national Australian Fair Pay Commission ('AFPC') - which is to set federal minimum wage ('FMW') - would lead to general reductions in wages for workers. It was further argued by opponents of WorkChoices that there is no offsetting benefit in the form of increased employment that would result from any reduction in wages that occurred.
This article starts by looking briefly at the arguments made on the two sides of this debate: by some of the supporters of WorkChoices that reductions in wages and wage flexibility will lead to increased employment; and, by the opponents of WorkChoices, that reductions in wages and increased (downwards) wage flexibility will not and cannot lead to increased employment.
Secondly, the article reviews the voluminous literature on the issue. It concludes, contrary to critics of WorkChoices, that there are very clear circumstances where the lowering of a minimum wage can lead to increased employment and, similarly, there are instances where an increase in a minimum wage can lead to increased unemployment. The evidence supporting these conclusions is overwhelming.
The third part of the article examines whether the conditions in Australia are such that any decrease in the FMW would be likely to lead to increased employment.
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