Guest: Australian Free Market Economist, Gerard Jackson

Australia’s newly created Fair Pay Commission is soon to make its first decision on what will be Australia’s minimum wage.

The Commission says that it will adopt a “consultative” approach with all stakeholders and will be independent of government. By law, the government is not allowed to reject Fair Pay Commission decisions.

The Commission hired Professor Phil Lewis to:

Undertake a survey over-viewing recent Australian and international research on minimum wages.

Professor Lewis has recently expressed his personal views as to what he saw as the effects of increasing the minimum wage. Namely, MORE unemployment.

Topics covered include …

ACCI – Australian Chamber of Commerce and Industry – Chief Executive, Peter Hendy, says that the ACCI has decided to:

… move away from the ideological conflicts that have consumed it during past wage cases in the Australian Industrial relations Commission.

What does this statement mean and what’s wrong with the ACCI’s position?

What does sound economic theory say about raising labor costs above the marginal value of labor’s product? The ACTU (Australian Council of Trade Unions) wrongly claims recent research has falsified this theory. Why is the ACCI so ineffective in challenging the ACTU?

Do wage rates in excess of the inflation rate cause unemployment? Does the free market …

violate human dignity unless this is well-defined and enshrined in law or custom

… as the Ian Harper, head of the Fair Pay Commission has claimed?

What is the “effective minimum wage”? Under what conditions do minimum wages cause unemployment?  Under what circumstances do they not cause it? Who flat-out denies the link between the effective minimum wage and unemployment, flying in the face of the evidence and lying about the existence of numerous studies that show otherwise? What does “marginal productivity theory” say?  Do increases in real wage rates cause unemployment according to this theory?

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The idea of a government mandated minimum wage is deeply entrenched in Australia, the United States, and across the West.

In 1933, American President, Franklin D Roosevelt said

… no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.

But Gerard Jackson argues that an “effective minimum wage” (one that is higher than what a free market would deliver) is a key factor in creating unemployment.

Topics covered during this interview include:

Even The Howard Government’s Workchoice laws preserve a minimum wage. The wage rate being discussed includes money in the pay packet AND all other conditions and benefits such as holidays, conditions, etc. What is meant by the “effective minimum wage”. Politicians as economic illiterates.

The discredited methodology of the David Card & Alan Krueger report that claimed increasing minimum wages does not necessarily cause unemployment. Why do workers and employers have different “rights”? The role of capital structure – the material means of production - in determining real wage rates. Adam Smith’s confusion on this issue.

And much more!

For further comments regarding the way unions wrongly rely on the Card-Krueger study, read Gerard Jackson’s essays here and here.

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Australian Free Market Economist, Gerard Jackson, discusses “Marginal Productivity Theory”.

Here is a simple definition of this theory from Answers.com:

The marginal-productivity theory maintains that employers will only pay a wage that is, at most, equal to the amount of extra value added to the total product by one additional worker.

And here’s another from Britannica Concise …

In economics, the theory that firms will pay a productive agent only what he or she adds to the financial earnings of the firm.

This is not an easy Theory to grasp for non-Economists.

But the different views that different Economists have on Marginal Productivity Theory determines what Economists and policy makers decide should be done to reduce unemployment and to achieve full employment.

Diagrams that are referred to during this interview …

Diagram 1.

Diagram 2.

Diagram 3.

Also referred to during this interview:

• Gerard Jackson’s essay: Minimum Wages and Capital Accumulation: Lefty economists fail again.
• Paper by Paul Frijters and Robert Gregory: From Golden Age to Golden Age: Australia’s “Great Leap Forward”?

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Consider the following …

Scenario One

George is unemployed. He’s looking for work. But he can’t find it. What if he had more or better job skills? Surely that would improve his chance of winning a job. Therefore, if the government were to provide effective training in job skills that would reduce unemployment. George would have a better chance of getting a job. And so would everyone else in George’s predicament.

True or false?

Scenario Two

Julie is unemployed. How can we get her working again?

The ACTU (Australian Council of Trade Unions) suggests the following:

If the Federal Government injected between $3 and 4 billion into infrastructure and public works, community services, short term job creation and schemes geared at employing those who’ve been out of work long term, then about 100,000 jobs would be created in 18 months.

The Brotherhood of St Laurence has a similar proposal:

… we need government to lead by investing in training and work programs for jobs that meet social needs.

… Green jobs: … Australia has a long way to go in developing excellence in environmental management … there is a major opportunity for green job creation that can provide significant social and economic benefits

… Social and community service jobs: [with a] serious shortfalls in the provision of many social and community services [there is] considerable scope for government interventions to create jobs, improve social outcomes and quality of life, as well as contributing to the long-term competitiveness of the Australian economy.

Would this work?

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Please note two corrections:

Speaking about the German workforce, Gerry referred to 68% of the German workforce. This should have been 68% of the German INDUSTRIAL workforce.

Also, during this interview, Gerry referred to “Ross Fitzgerald”. This should have been ROBERT Fitzgerald.

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Australian free market economist, Gerard Jackson, explains how and why – and exposes how unions do in fact tacitly acknowledge how artificially high real wages and closed shops contribute to unemployment.

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Gerard Jackson explains the fallacies behind this position. How logic, history and centuries of economic thinking refute this notion.

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