Fixed Minimum Wages – A Blessing or a Curse?

It is the 3rd anniversary of attacks on Indian student in Australia and the subsequent exposes highlighting the exploitation in the employment of Indian students and malpractices in the labour market. I still remember a heated discussion, I had then with an acquaintance of mine, three years back, who at the end of the discussion told me unashamedly that he would continue to use Indian students (read: employ them at market wages) and if he did not use them, he would lose the competitive advantage and would fail as a business because every other competitor would still be using them. I did pour my scorn at his audacious display of bravado then.

Three years later, having seen the situation evolve, I have started to question the effectiveness of stipulating minimum wages.

What is a guaranteed fair minimum wage? Australia’s minimum wages are regulated by the Fair Work Act, and the minimum wage is $15.51 per hour or $589.30 per week. Casual workers should receive a loading on top of the permanent hourly rate of between 15% and 25%.

There are calls that award wage be increased to $615.30 a week for 1.4 million lowest paid workers. That means the hourly wage would increase 68c, from $15.51 per hour to $16.19.

I recently attended an academic seminar on the topic of attacks on Indian students and one of participants said that in one of the colleges, there were 28 students in a single class and 26 of them were from a mofussil town in Moga in Punjab, India and most of them could not speak English. I used this case to suggest that paying minimum fixed wages to such students was not possible because they were unemployable, at even the minimum wage of 15.51 an hour and small businesses, bulk employers of such students, could not afford to employ them. Such students would simply not be able to deliver what the employer needs, who would be forking out 15.51 an hour for them. I had all eyes gazing me for uttering the politically incorrect opinion, as if I had committed blasphemy.

There is no doubt that many students are being exploited by business operators who pay less than minimum wages to students. The question is what have we done to prevent such instances? It is fair to say that apart from a few published cases of exploitation, we have failed to unearth bulk of these cases. It is clear many employers value the labor of such people, below the minimum wage.

The Guaranteed fair minimum wage is effectively pricing a lot of students and other workers out of the job market, which does two things. It leaves majority of them unemployed at a wage of $0.00. And it creates a big pool of grey labour market which is hard to regulate and puts students at a tremendous disadvantage vis-à-vis employers, leading to other social problems.

Which is worse? A potential wage slightly below the current mandated minimum wage or a wage of $0.00?

If these students don’t participate in the work market, it is very likely they would take a long time to assimilate themselves and with the absence of workplace skills, their aim of finding respectable work and gather English speaking skills, will continue to stretch.

If an employer pays anyone lower, in all likelihood some other employer will overbid him. Businesses have to compete for the work force eventually.

Australian retailers employ about 1.2 million workers. Consider what Russell Zimmerman, Executive Director of Australia Retail Association has to say. “To subject Retail to the same minimum wage conditions as other award-reliant industries is simply unreasonable given retail trade is at its worst and many stores have been forced to close their doors amid poor trading conditions.”

Scrapping minimum wage for an initial period of everyone’s employment, say 12 months, would increase the supply of labour in the market, increase competitiveness of Australian businesses, reduce welfare payouts and would be a boon for many of Indian students coming to Australia who are finding themselves unemployable in a very difficult environment.

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