The ACTU’s proposed minimum wage hike would destroy 115,000 jobs, the IPA has calculated based upon modelling developed by economist and Labor MP Andrew Leigh.
The ACTU are claiming that their proposed 7.2 per cent increase in the minimum wage would create 57,000 jobs. Their jobs creation claim is premised on low skilled workers spending more in the economy, and thus creating jobs like a stimulus.
Problematically, however, the ACTU are ignoring the impact of raising the minimum wage on employers. There cannot be more spending in the economy if the jobs and wages do not exist in the first place.
A higher minimum wage inevitably means higher cost pressures on business and fewer jobs, less hours, and more automation. This particularly hurts the poor, unemployed, low skilled, and young.
In 2003, then-academic economist and now federal MP, Andrew Leigh used a natural experiment, the decision by Western Australia to independently increase their minimum wage, to determine the impact of minimum wage increases on the Australian economy. Leigh calculated that a 10 per cent increase in the minimum wage led to a decrease in employment of 1.3 per cent.
Applying Leigh’s modelling to the ACTU’s proposed minimum wage increase would pan out to a 0.9 per cent decrease in employment. Based on current employment figures, that means up to 115,000 fewer jobs.
That is 115,000 fewer Australians having the income and dignity provided by work, being able to provide for their families, and the opportunity to build skills to get better jobs in future. It would also mean tens of thousands more people on unemployment assistance costing taxpayers millions of dollars.
The ACTU’s proposed minimum wage hike would hurt the poorest by taking away their opportunity to get a job.