Government destroys 100,000 jobs while unions cheer

Queensland economist John Humphreys, a member of the Australian Taxpayers' Alliance Board of Advisers, has examined the effects of the recent decision to significantly increase the minimum wage.

He used the formula of Labor MP Andrew Leigh (who, prior to being elected, was an ANU economist), and concluded:
The inconvenient fact is that increasing the minimum wage is a bad way to help the poor (since most recipients are from middle-income households) and it destroys jobs. That means more families caught in the welfare system and more children growing up in homes with no working parents.

The government, opposition and unions are hoping you are gullible enough to believe the line: “we have destroyed jobs to fight poverty”. Are you?

It is not as though the facts are in dispute. The “minimum wage elasticity of labour demand” is one of the most over-studied statistics in economics, and the empirical evidence overwhelmingly supports the very obvious notion that higher minimum wages lead to fewer jobs. No amount of poetic political polemics is going to change that.

Estimates for the link between minimum wages and employment vary, but in Australia the best estimate we have comes from Andrew Leigh, who found an elasticity of 0.29, with a sensitivity analysis range from 0.25 to 0.4.

This means that for each 1% increase in the minimum wage we can expect a 0.29% decrease in labour demand. Given that we have over 11 million people working, that means the proposed 2.9% minimum wage increase will reduce labour demand by 0.8%, which is just over 96,000 jobs.

So there you have it. At a time when over a million Australians are looking for jobs, our government has just added 100,000 people to the queue.

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