Law and Business
Managing wage levels remains a contested issue in the public arena. In recent times, Australia’s Transport Workers Union defended the timing of a legal challenge over the introduction of minimum pay rates for truck drivers, saying trucking contractors need better pay to compete and stay safe on the roads. Perhaps predictably, not everyone agreed, with some commentators claiming that mandatory minimum wage improvements would compromise the financial survival of operators. Political figure heads have also been vocal on the issue. The Leader of the House Christopher Pyne said the Australian Government stands by owner-drivers and small businesses who just want to make an honest living. In contrast, Opposition leader Bill Shorten said the push to scrap the tribunal represented a "race to the bottom" on wages.
More recently, in its 2016 budget announcement, the Australian government included a new program, placing jobseekers under the age of 25 in internships. Working up to 25 hours per week, interns would then receive an extra $200 per fortnight on top of their existing welfare payments. Welcomed by some, the Australian Council of Trade Unions criticised the move, branding it "$4-per-hour jobs for young people" that would merely provide yet another layer of unpaid labour, subsidised by the taxpayer. Such concern is not altogether surprising. Compared with Australia's minimum wage, an employer would save AUS $432 a week by turning to an intern rather than a standard salaried employee.
With a national election looming, the notion of fair wages remains a thorny issue in Australia's socio-political conscience. It is, of course, not just a matter of concern in an Australian context. Low pay poses issues for managers internationally. Debates around the recent introduction of a national minimum wage in Germany, discussions of the level of state and federal minima in the USA, calls for a European minimum wage and low pay concerns in multi-national supply chains have all been at the heart of an ongoing global discussion.
In a similar vein, productivity concerns preoccupy many commentators, with evidence on the minimum wage-productivity link scarce and inconclusive. A new study now challenges the common industry position that minimum wages result in an excessive cost burden, job losses and little sign of any productivity growth.
The authors of the study argue instead that minimum wages generate positive productivity effects and can thus reduce the number of working poor without frequently assumed negative side effects. Specifically, they point at wage-induced incentives and behavioural effects, which can have a positive impact on productivity in the low-pay economy.
Published recently in the British Journal of Management, ‘The UK national minimum wage’s impact on productivity’ presents novel empirical evidence and demonstrates that the introduction of the national minimum wage in the UK has resulted in improved productivity over time.
One of its lead authors, ACU Professor Thomas Lange, said: “We use British data, but our findings also provide powerful lessons for other countries. Calls by the international trade union movement for improved minimum wages to counter the development of a working poor underclass are all too often greeted by industry and policy rebuttals, with at times remarkably vocal suggestions to pour scorn on the idea. Yet if a government is serious not just about neo-liberal austerity measures or industrial innovation boosts, but also about the fair treatment of low-paid workers with productivity-enhancing benefits, then our results are clear: the benefits of a Minimum Wage must be urgently revisited.”
The study, an international collaboration between Australian Catholic University (ACU)'s Centre for Sustainable HRM & Wellbeing and researchers at UK-based Middlesex University London and Lincoln University, is the first of its kind that provides empirical evidence in support of minimum wage-induced productivity enhancements. It embraces the UK government’s recent introduction of a National Living Wage, which delivers a higher minimum pay rate to around 1.8 million workers aged 25 and over.
The research findings show that the minimum wage impact is strongest in service sectors such as retail, cleaning and security services where labour input is relatively important and in larger organisations where wage differentials are usually greater. Total factor productivity improvements of up to 11% became evident in large firms, while cleaning and security services recorded the highest productivity gains, with an increase of around 25%.
Professor Lange said the analysis showed that the introduction of the minimum wage in the UK led to improvements in total factor productivity across a variety of low-paying sectors.
“Our results support suggestions that public policy has not fully realised the potential benefits of a fair minimum wage. What is more, managers who are focused on myopic cost-reduction strategies may not grasp the potential for significant productivity advances.”
“The explanatory argument here is actually a rather simple one from a behavioural perspective. If individuals perceive their wages to be below their felt-fair level, they will reciprocate with reduced effort. Productivity will remain low as a consequence, especially in labour intensive sectors. It follows that a focus on low wage, cost-reduction strategies is counter-productive if discernible productivity growth is the ultimate goal.”
Rizov, M., Croucher, R. and Lange, T. (2016). The UK national minimum wage’s impact on productivity. British Journal of Management, Online Version of Record [Early View - open access]: DOI: 10.1111/1467-8551.12171 http://onlinelibrary.wiley.com/doi/10.1111/1467-8551.12171/abstract