Mangled Thoughts

In comment under, RBA, Rudd Cabinet, and Opposition in a flap as keynesianitis infected chooks roost, Anon raised a couple of questions. His starting point is a general reference to Bob Day, HR Nicholls Society clown and another Liberal Party wrecker, concluding with a presumption:

Thus he would presumably support a reduction or abolition of trainee wages.

The short answer is, “Anon” can ask Mr. Jackson himself.

What Anon has raised is the height of wages. This is something Day and his fellow HR Nicholls Society have blundered badly on and this is not the only matter in labour markets they cock up sufficiently that the ACTU heaved a sigh and a jolly good laugh during the fight for reform. So, Anon’s question:

However, according to a 2004 ACCI survey of 732 employers, 52% of employers paid some or all of their apprentices above award wages. Of the apprentices employed, 45% were paid above the minimum prescribed wage rate. Therefore, the argument that apprentice wages are too low seems hard to justify.

Day is asserting they are too high. It is not the height of pay rates, but whether the minimum is an effective minimum,a rate higher than the market rate, and it is this the effective minimum that does the damage, forcing some to many into unemployment. So, “Anon” writes,

Of the apprentices employed, 45% were paid above the minimum prescribed wage rate

Labour isn’t homogenous, so that 45% doesn’t tell us much except 45% of all apprenticed labour has higher market rates than the award. The award rate, for them the 45% is not an effective minimum. This leaves the 55% and so they are on, presumably, the award rate. The real question is, is the award rate an effective minimum for some apprenticed labour, priced it out?

In a free market, ’skills shortages’ might occur as in for some firms in which the marginal value of labour is lower than all other jobs. It is easy to imagine some employers screaming, “It’s not fair, labour costs are too high, they can’t get anyone to work for them.” In fact, Bob Davis, Hugh Morgan, Ray Evans, Des Moore and the rest of the HR Nicholls gang have done, not the same but… well, let’s cite them again.

Hugh Morgan’s pultizer prize winning contribution to economics is:

The ratio of minimum wage rates to the median wage rate explains whether wages are either about right or too high. Wages are 58% of the median, they are too high.

There’s the height of wages bugaloo again.

What the HR Nicholls Society simply states is:

Australians are paid too much, and this causes unemployment. Australians, to rectify this, should be impoverished by hefty pay cuts.

Bob Day parrots Morgan’s nonsense:

[An apprentice’s] wage was typically 10-15 per cent of the tradesman’s wage in the first year….The solution lies in allowing… tradesmen and apprentices, regardless of age, to negotiate indenture agreements which satisfy both parties.

The Australian, 18 January 2005

When I started in the home-building industry in 1973… Building apprentices’ wages at that time were extremely low… As a result, just about every tradesman had an apprentice and because the wages were so low (less than 15% of an adult wage), most (but not all) lads came from lower socio-economic areas. Those lads have now long forgotten their lean times as apprentices and are doing well…

Checkpoint Charlie: A Submission to the House of Representatives Standing Committee on Youth Unemployment, ‘paper’ to the HR Nicholls Society.

Day, as his fellow clubman holds the fallacy of prices of labour are indeterminate. Morgan’s novelty reflects this fallacy and compounds the error because it is risible rubbish.

It really doesn’t matter whether nomenclature such as “trainee wages” is dropped or not, as “Anon” raises it, it is market processes that sets prices for any type of labour.

It is also why (market processes) Day’s notion of employers and (prospective) employees “agreements which satisfy both parties” is wide of the mark. Prices are set by markets.

It is also crucial to observe, and in answer to “Anon”, wages cannot - certainly not in free markets, be forced down below market rates. This fact further points up how bad Day, Morgan et al are. Unless Day, Morgan et al are proposing labour be bound to ‘masters’, which, funnily enough and in view of their very strange “master-servant” and “indentured labour” notions, the HR Nicholls Society also proposes. This, of course, would mean totally destroying free markets for something smacking of brute coercion.

So, as far as height of real wages goes, let them be higher. Why shouldn’t many better off and become wealthier, rather than a lucky few? It would be a great, general improvement. However:

It’s only capital accumulation that raises them higher.

The above ratios are meaningless.

Wage rates are not indeterminate (another falshehood the ACTU asserts, and so do the HR Nicholls Soc. Clubmen).

Wages can be dragged down through destruction of capital, which Co2 taxes will deliver on a massive scale.

The trigger for unemployment is when effective mininum rates are imposed, these are rates higher than market prices.