Michael Pascoe: JobSeeker can be higher than the minimum wage

Higher wages in a tight labour market can drive productivity improvements, Michael Pascoe writes.

Higher wages in a tight labour market can drive productivity improvements, Michael Pascoe writes. Photo: TND

The thing about increasing the JobSeeker payment – both the government and the Opposition want to make the cut-off for it higher than the minimum wage.

That says more about the minimum wage than our social security safety net, but cue the usual suspects with “dole bludger” headlines and shock jock outrage if they realise it.

And another set of usual suspects are already warning of catastrophic ramifications if the minimum wage is increased by the inflation rate – unemployment will soar, inflation will jump, the earth shall split asunder and spew forth hellfire, toads and serpents.

(Never mind that it is official policy to increase the unemployment rate, minimum wage rises demonstrably don’t have much of a flow-on effect for total wages, and reptiles don’t live in hellfire.)

There is nothing simple about the interaction of our tax and transfer systems, the way means tests cut in and payments are cut down as people receiving benefits of one sort or another earn a little more money.

Depending on their circumstances, people receiving benefits can be hit with effective marginal tax rates of 100 per cent for working an extra shift or getting the minimum wage rise, as has been covered in this space before.

Helping hand

The inner circles of that hell are barely understood within government, let alone outside. Fortunately, David Plunkett, a retired public servant who worked in the area, has become an invaluable resource for explaining its challenges.

Using the example of a single person with rent assistance, Mr Plunkett says JobSeeker presently cuts out at an income of $799.75 a week.

Labor’s $20-a-week JobSeeker increase would lift the cut off to $833.09, while Mr Dutton’s proposal of allowing extra hours of work would mean an $874.75 cut-off point.

Meanwhile, the full-time minimum wage is $812.60.

And the gap between the minimum wage and the cut-off can be much greater.

“For a sole parent with a youngest child 14 or 15, the cut-off (renting or not) is currently $1026.63 a week, substantially above the full-time minimum wage,” Mr Plunkett says. “You can add $75 to this for Dutton, or $50 for Labor.”

Working poor

The reality is that what many people still consider an unemployment benefit is paid to people with incomes equivalent to full-time employment at, or above, the minimum wage – the working poor.

It is one of the great policy contradictions that standard economic advice on the tax system endlessly repeated in our national press tends to stress – income tax rates of 40-something per cent are a disincentive for the well paid to work while vastly higher effective marginal tax rates are somehow supposed to create an incentive for the poor to work more. Carrots for the rich, a stick for the poor.

Meanwhile, in the real world, JobSeeker is a survival subsidy for the working poor or a subsistence payment for people effectively unemployable or only marginally employable. The Murdoch tabloids’ Byron Bay basket weavers are so rare as to be almost statistically irrelevant.

It is easy for political tensions to rise when JobSeeker cuts out substantially higher than the minimum wage, and employer groups are campaigning against that minimum wage just maintaining its real value by matching the inflation rate.

Inflation hits low-income groups much harder than those higher up the ladder. They have fewer opportunities to cut costs as prices rise – there’s no further step down from home-brand pasta.

Unequal treatment

As has been explained in the development of the Vimes Boots Index, the Consumer Price Index does not adequately measure inflation as it is suffered by the poor.

It is nonetheless somewhat bemusing to see employer groups seizing on the dangers of inflation to press for a minimal minimum wage rise.

As usual with cost increases, some are passed on, some are absorbed, some are offset by businesses being forced to become more productive and the least productive businesses fail, freeing up resources for the more productive.

Overlooked in the usual platitudes about the need for productivity growth is that improved productivity is what happens in individual workplaces – and “comfortable” Australian businesses seem to need to be poked into being more productive.

Shortages of labour can and do drive productivity improvements. So can higher wages in a tight labour market.

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