Sunday, August 11, 2013

Ceteris Paribus

As American fast food workers continue to work towards a 15 dollar per hour minimum wage, Jaisal Noor speaks with Salvatore Babones, Senior Lecturer at the University of Sydney in Australia.  Australia has an over sixteen dollar per hour minimum wage, and unlike the U.S., is not in an economic recession (to put it mildly insofar as the U.S. is concerned).  

Could this be attributed to a higher minimum wage? Babones supports the view that raising minimum wage does not hurt, but rather helps the economy as, for example, Australia has been doing well, only experiencing a mild slow down in hiring in 2008, then things "picked right back up."  Also, says Professor Babones, "We have to remember - that's in a context where ordinary workers don't just make, you know, 17, 18, 19 dollars an hour, but in which those workers have vacation days, sick days, 4 weeks annual leave, and full health insurance." [And retirement benefits, he also states later, with the exact wage for Australian fast food workers at 17.98 per hour.] 

That is, Professor Babones tells us, looking at Australia (and Europe, too) where workers are doing much better than the U.S., the studies just don't bear up to the idea that raising minimum wage hurts the economy;  rather, that it helps.

He states,
"There's a theory that raising the minimum wage will result in fewer jobs.  And that theory seems to make intuitive sense.  That when wages are higher, you know, people hire fewer people.  And in isolation, that would be true.  There's an assumption economists like to make called ceteris paribus - which means all other things remaining equal, this would happen.  But all things are never equal.  For example, when you raise minimum wage, people make more money.  That's the first thing that's not equal.  As people make more money, they spend more, they pay more in taxes. The entire character of the economy changes.  And so what we really need to do is instead of arguing from theory that if you raise minimum wage it would cause problems for employers, you should argue from fact.  That is, look at countries where minimum wage is higher.  See how well they're doing. And in fact, those countries are doing quite well."
Hear the full interview:

Image credits/Top first, Via The Solari Report Blog: Building Wealth In Changing Times, posted by Catherine, "McDonald's To Become Macca's in Australia." The Australian nickname for McDonald's, "Macca's," became so popular that they changed the sign as shown in the picture.  But an Australian McDonald's is more different than its nickname.  Australian fast food workers make 17.98 per hour, while also enjoying full health coverage, vacation days, sick days, 4 weeks annual leave, and retirement benefits.  The Australian economy is doing well despite claims in some American circles that raising minimum wage hurts economies. (Notice, too, that the Macca's is open 24 hours.) Second image, Courtesy of Young Economists' Convention, posted by Tricia Della Rosa, "Ceteris Paribus and its Etymology."  Harry Potter makes the effective point.

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