Posted by You can’t fix stupid. Take this Globe and Mail article written by Andrew Newman which is a puff-piece that’s tries to justify and explain why the huge jump in minimum wage in Ontario and Alberta not only won’t have a huge economic impact but is actually good for the economy: Australia pays fast-food workers $20 an hour and the sky hasn’t fallen. The point of the article can be summarised easily:
Australia and Canada share much in common, but one striking point of difference is the minimum wage. While Canada has been engulfed in a debate around the minimum wage in recent months, it’s a given in Australia that a barista making your latte or a fast-food worker serving your burger is earning at least $20 an hour.
Has the economy crumbled under the weight of high wages? No. The Australian economy has fared quite well by international standards. GDP per capita is healthy at around US$48,000, compared with Canada’s $44,000. The unemployment rate is low, at 5.4 per cent nationally. There has not been a recession since the early 1990s. This is arguably in part a result of the buoyancy of demand created by high wages.
What we have here is a lawyer, and a biased one at that given that he is a labour lawyer whose PhD thesis, “examines Canadian and Australian approaches to low-paid and insecure work among temporary migrant workers”. He talks a lot about economics in his article, a subject on which he clearly has no clue. His analysis and arguments are rife with inane comments like these that, on the surface sound intellectual, but to the trained and educated economic mind are just nonsense.
Some credit the Australian “wages welfare state” as having contributed to a comparatively low level of sovereign debt (OECD data for 2015 puts Australia at 67-per-cent debt/GDP ratio and Canada at 114 per cent.)
A further aspect of efficiency, and of workplace culture, is the efficient allocation of skills and labour. A high-wage system encourages movement between jobs because it minimizes the downside risk of job changes or job loss. Modern Award wages also encourage job retention and development of skills by raising the minimum wages paid according to classifications linked to responsibility, skills and knowledge of an employer’s business. In Australia, a retail job is a viable alternative for many middle age and older Australians because it pays well.
To be sure, a transition to a high-wage economy does not happen overnight and it does not happen without pain. Some businesses will close. Some prices will increase. Some employees will lose valuable shifts. A longer period of adjustment may be justified. A different legal structure certainly is.
The low sovereign debt of Australia has everything to do with an overall robust economy and nothing to do with high welfare wages. The debt/GDP level of Canada and the most of the West was much lower before the Great Recession of 2008, a recession that Australia managed to avoid (more or this later). Contrary to what Mr. Newman thinks, it is low unemployment that encourages job movement (as well as higher wages), not the other way around. Allowing well-educated middle-aged and older Australians to work retail because it “pays well” is exactly the opposite of an “efficient allocation of skills and labour” because it puts people in jobs that they are overqualified for but pay enough and are less stressful. It’s like the old saying from Communist China, “If you work you get 36, if you don’t work you get 36”. The end result is a lack of effort because why bother – kind of the opposite of “an efficient allocation.”
I always find it suspicious when people try to make comparisons to other countries by selecting the most extreme and egregious example. For liberals, they usually, but not always, wax eloquently about the Scandinavian countries and their social welfare networks and relative prosperity. I talked about that a bit in a previous article about why I don’t like Sweden because unlike most people who like to make these comparisons, I lived and went to school there so have a little better understanding of the reality – warts and all. Or when trying to justify continued massive subsidies to the Canadian Brainwashing Corporation, they try to use the British Broadcasting Corporation (ie, singling out the one country that spends more on subsidising state-owned public broadcasting) as a justification as I wrote about in this article. In this case, we are presented with Australia as an example of why we should have super-high minimum wages. Why pick Australia? Well of course because it has the highest minimum wage in the world so you have to pick the one that is at the top as justification for why we need to raise ours. You will also note that out of the OECD rich countries, Canada is not a slouch to begin with coming in at #9 on the list. Of course this is before the huge increases we have seen in the past two years so it’s likely if we got an updated table, Canada would even be higher on the list today.
Other than “the land down under”, Australia has another nickname that many in the rest of the world might not know – “the lucky country”.
The Lucky Country is a 1964 book by Donald Horne. The title has become a nickname for Australia and is generally used favourably, although the origin of the phrase was negative in the context of the book. Among other things, it has been used in reference to Australia’s natural resources, weather, history, its early dependency of the British system, distance from problems elsewhere in the world, and other sorts of supposed prosperity.
Horne’s intent in writing the book was to document Australia’s climb to power and wealth, basing it almost entirely on luck rather than the strength of its political or economic system, which Horne believed was “second rate”.
But let’s take Mr. Newman’s assertions at face value without considering that his comparison of Australia to Canada is massively biased to begin with. He makes two major claims which is that the Australian economy is doing well and more dramatically, he makes the assertion that the high minimum wage (ie, strong domestic demand as a result) is a driver for this.
Mr. Newman is correct is saying that Australia has not had a recession since 1990. There is a simple reason for this that has nothing to do with a high minimum wage – China. China’s rapid growth into the economic juggernaut that it is today required massive amounts of imported raw material, specifically coal and iron ore to fuel its construction and infrastructure building binge. Guess which country was a prime beneficiary of this huge demand for resources?
In this regard, Australia is not so different than Canada. A large land mass with abundant natural resources and a relatively small population. But unlike the smug Toronto elitists who like to think of Canada as a well educated, high-value added, technologically sophisticated, industrialised G7 economy (despite the fact that we are not); Australia is clearly a hewer of wood and drawer of water. It exports a huge amount of natural resources (primarily iron ore and coal but other things as well) and imports a large amount of its manufactured goods and technological products.
So riding on the coat-tails of China’s three-decade economic boom, Australia has been selling resources to the Chinese as quick as they could get it out of the ground. The end result of this is, predictably, a three-decade long economic boom in Australia which has allowed it to outpace virtually all other developed countries including Canada. Like China, they didn’t even have to suffer through the “great recession” following the collapse of the US Housing Bubble in 2007 like the rest of us. Just look at how well Australia has done over the past 15 years compared to the rest of the world:
Far from minimum wages driving the economy, it was massive exports of resources to China that created the wealth for Australia that allowed them the luxury of full employment and rising wages for all. One does not create national wealth by flipping burgers and selling coffee amongst yourself – you still have to make or create something that others want. That could be cheap manufactured products (China), quality engineered products (Germany), high tech electronics (Japan and Korea) or value-added services (like Hollywood entertainment or Silicon Valley software and internet companies). Seeing that Australia, like Canada, is obviously not a world leader in any of these, their primary wealth is created by simply digging stuff out of the ground and selling it in bulk. The author of this article clearly doesn’t understand this basic economic principle. If higher wages by themselves were enough create wealth and economic prosperity, we wouldn’t have any global poverty. Every poor African could simply declare a $20 minimum wage and watch their economy take off. What do you mean it doesn’t work that way? You mean there is such a thing as labour productivity that drives sustainable wage growth? Somebody should tell Andrew Newman before he submits his PhD thesis then.
Put it another way. If all the liberal eco-hippies in Toronto, Montreal and Vancouver would just let us build our pipelines, LNG facilities, and oil sands without continued massive opposition that results in continued lengthy delays and outright cancellation of projects that would fuel economic growth for all of Canada… I would have no problem with them eventually increasing the minimum wage to $15 or even $20. Canada’s problem is that we seem intent on redistributing a shrinking or stagnant pie rather than making the pie so large that everybody can a bigger slice. There was a time when Canada was like Australia, as graphically illustrated by this short opinion article: The story of how B.C. asked for, benefited from, then double-crossed Trans Mountain. This is not mere nostalgia waxing about a time and world long past – it is a truth that Canada needs to face if it is ever to have a chance of prosperous future. The real lesson we should learn from Australia is not that high minimum wages work; but that we should be like them down under and “dig baby dig” – only then can we afford our overpriced $20 organic lactose-free soy-lattes. And maybe, just maybe, sometime in the future, people will start calling Canada “the lucky country” as well instead of the “Great White North”.
Update 1 (24 February 2018): Wow. It sure didn’t take long for my simple economic analysis of the stupidity of the sharp hike in minimum wage to show up in the official statistics. Bloomberg reports: Minimum Wage Hike Lifts Ontario Restaurant Prices Most Since 1991. Of course that would have been the year when the government put in the 7% GST so once again, a sharp rise in minimum wage without any corresponding gain in labour productivity has resulted in inflation. That this should come as a surprise to anyone is, in itself surprising. I am also pretty confident that we will see a rise in unemployment as a result of the move in Ontario and we aren’t finished yet as the minimum wage in Alberta and Ontario are set to rise again over the next year. Hold on to your hats.
Update 2 (26 February 2018): What is the difference between Australia and Canada? Maybe it just boils down to our stupid progressive leadership under incompetent pretty-boy Trudeau Jr. and his social engineering agenda. Australia trades a lot with China and its economy is very dependant on that trade – that’s why they entered a free-trade agreement (ChAFTA) in 2015. Canada, under Trudeau, cannot even start negotiations on a FTA let alone sign one because, “In a press conference with Canadian reporters, Trudeau said Canada is committed to progressive trade deals, which include chapters on the environment, gender and labour standards.” In other words, Trudeau thought China would be willing to put up with his SJW crap which has nothing to do with trade (something that Australia didn’t ask for by the way) – China begged to differ. I mean seriously, who goes to someone else’s country and preaches to them that they have to change their entire social order because “ours is so much better.” Trudeau does, and he doesn’t have the common sense to figure out that a country that is much bigger and more powerful than Canada with leaders that are infinitely more capable and intelligent than he is would basically do the diplomatic equivalent of telling him to go have conjugal relations with himself. It’s not as if Trudeau is reflecting the views of the average Canadian in any case (although he and the “intellectuals” in Toronto and Vancouver think they are). According to University of British Columbia poll, nearly 70% of Canadians support a free trade deal with China. Nowhere in the study does it say that Canadians want a trade agreement linked with “environment, gender and labour standards”. Because unlike Trudeau, maybe the average Canadian kind of understands that those issues are not what free trade agreements are about and trying to link them in is a non-starter.
How else does pragmatic Australia differ from Canada while we stagnate in our progressive social agenda. How about this move by the Australian government to spend $15m to release a herpes virus in the Murray-Darling river system to try to control the spread of the invasive common carp that makes up 90% of the fish biomass in the river system today. That sounds a lot like the failed (and continued) attempts to introduce viruses to kill off another invasive species in Australia, the rabbit. But hey, mutation and cross-contamination aside, at least the Australians are trying to do something. Can you imagine the same thing happening in Canada – especially under the current government? Well, we actually have an invasive carp problem as well with Asian Carp overwhelming the Mississippi River in the United States and is now moving into the Great Lakes. Ottawa’s answer, spend $20m on more researchers and monitoring. Hey Trudeau, just give me $2 million and I can save you 90% of that cost of research and monitoring because in five years I can already tell you the end result; the Great Lakes are going to be infested with Asian Carp just like the Mississippi River system has been. this is pretty much certain because fertile carp have already been found in the Great Lakes. So waste as much money studying carp all you want but the end result is already pretty certain at this point given the American’s containment plans have already failed – the Great Lakes are going to be awash with Asian Carp. Maybe we can go ask the Australians for the virus after it has wiped out our fisheries. We will have the added bonus of seeing how effective their plan has been in real life and if there are any side effects or cross-contamination from the virus as well.