Jacques Chester for Solomon

Being a fairly egotistic sort I frequently check my statistics page to see who is linking to me. Today I was linked from a discussion forum — a discussion thread entitled “WARNING dangerous moron in NT”. I disagree with “moron”, but in fairness politicians can be pretty dangerous when they decide they know best. The discussion centres around the report I mentioned in my post immediately below — that the 30/30 plan includes removing or reducing the minimum wage to make marginally unemployed people more attractive to employers.

Leaving aside the fairly predictable hyperbole of that thread, I thought it would be worth briefly outlining why any politico in their right mind would support such an incredibly unpopular policy. It’s simple, really: the minimum wage prevents people from working. It hurts the poorest hardest of all.

At first this seems counter-intuitive. It’s one of those economic conclusions that flies in the face of common sense. But it’s still true: the minimum wage sets a floor price for labour. If the value of the work person A can give business B is less than what business B expects to get done, person A simply won’t be hired. We know for a fact that unemployment leads to poverty, depression, crime and other social ills; so this is an important thing to look at.

Still not convinced? How about a thought experiment. If the minimum wage is such a good thing, why not raise it to $50 an hour? $100? $1000? Ah, in this case it becomes clearer. At $50 an hour every retail worker and high school student is out of a job. At $100 a lot of tradies are in deep trouble and most professionals too. At $1000 only a few lawyers and entertainers are left employable.

What this example demonstrates is that the higher the minimum wage is set to, the fewer people are employable. It works both ways: if you cut the minimum wage, people who are the bottom of the employability pile become a better option for employers. And those are the people who most need help to get into work! They are the unskilled, undereducated folk who are struggling to find employment.

Now bear in mind that to prevent working poverty the LDP’s 30/30 plan also includes a 30% negative income tax. This means that we pay you 30% of the difference between your earnings and the $30,000 tax-free theshold if you earn less than $30,000. It represents an ironclad floor under personal income, not an ironclad floor under wages. The distinction makes a big difference in the employment market.

That’s why I support the policy: it just makes good bloody sense for pretty much everyone.

Edit: Below I have recreated Table 2 from the original 30/30 policy document to show how pretty much everyone is better off under our plan.