The main purpose of this report is to analyses the impaction of the increase of minimum wage in Australia according with the economic theories. The report will discuss the influence of the minimum wage from four aspects, including the impaction to the labor market, to the employees, to the business groups and the total economy of Australia.
Australia announced minimum wage increased by 26 dollars a week, so that the minimum wage was almost close to 570 dollars per week. Increase in the minimum wage will take effect on the labor market and employees, and business group. This report will firstly use of demand and supply and the price floor to analyze how the increase in the minimum wage impacts the Australian labor market. Then, this report will analyze the impaction of the increase of the minimum wage to employees. It then will discuss the impact on Australian companies. Based on the above analysis, this report will analyze it could have impact on the Australian economy because of the increase in the minimum wage.
3.0 The impact on the labor market
Wage is signal of labor market supply and demand, which can guide labor demand and supply behavior of enterprises and individual. If labor demand is less than supply, wage increases will stimulate a number of labor to take jobs, resulting in increasing labor supply and easing the contradiction between supply and demand; the other hand, the decline in wages would stimulate the part of the workers leave the labor market, reducing supply. Minimum wage system refers to the state and government intervention wage and increase wage rates by means of administrative. It is a important way for government to interfere in the labor market. In a fully competitive labor factor market, if the minimum wage is above the equilibrium wage, labor supply will be greater than labor demand; willing employees of companies are less than the number of workers willing to employment.
Figure 1 The supply and demand of labor market
As shown in Figure 1,Labor supply curve S and the labor demand curve D intersect at the point E, then supply and demand balance, together determine the equilibrium wage W0 and employment L0. If the government implemented a minimum wage policy to determine the minimum wage W1, which is higher than the market equilibrium wage level. Then the level of employment at this time is decided by the demand for labor, employment balances of L1, which is clearly less than level L0 when the minimum wage does not policy. Then it reduce the amount of employment for the L0-L1, which depends on the elasticity of demand for labor and the rate of minimum wage above the equilibrium market wage. When the wage level is the W1, community labor supply will be L1 ‘, so there will be excess supply of labor, the excess supply is L1′-L0, its size depends on the elasticity of labor supply and wage rises. Therefore, the minimum wage above the equilibrium wage policy for the entire labor market, will bring the amount of unemployment with L1’-L1.
4.0 The impact on employees
Based on their knowledge level of the background and technology, employees can be divided into primary, intermediate and advanced workers. For those intermediate and advanced workers, their wages are mainly determined by market supply and demand so the increase of minimum wage will not bring big impact on them.
For low-paid employees, increase of the minimum wage will impact on them. On the Short-term, increase the minimum wage will bring a lot of gospel base for some low-income families undoubtedly. Raising the minimum wage can safeguard the interests of low-income people and increase disposable income of these people, thereby improving their standard of living. It conducive to ensuring the basic living of low-income persons, promote consumption and promote economic development. Raise the minimum wage is to ensure and improve the income of low-income groups. According to level of income, consumer groups can be divided into high, medium and low categories. Keynes thought that the higher the income, the lower the propensity to consume, that the general propensity to consume of high-income groups is less than that of low-income groups. Beneficiaries of minimum wage, they are particularly strong desire for consumption. In addition to maintain the basic needs of life, to raise their minimum wage can provide them with a certain amount of consumer space.-è¯»
But the implicit result is that increase of minimum wages will lead a direct result of increased production costs of enterprises, reducing the profits of enterprises, companies are likely to reduce the demand for workers in favor of workers with machines and equipment replacement; or employ senior workers, so that these low-level and non-skilled workers are faced with unemployment.
In the long run, increasing the minimum wage will prevent the growth of human capital for low-skilled workers. Those who lose their jobs because of raising the minimum lose the opportunities to improve labor skill level. As this part of the workers are living in poverty, less likely to have the ability to participate in vocational training Learning and other activities to improve their work skills. Therefore, the minimum wage system will prevent this part of the worker’s human capital investment and growth. A survey shows that, with the unemployment time becoming longer, the re-employment opportunities will become smaller. Therefore, in the long term, the minimum wage increases unemployment for low-skilled workers.
5.0 Impact on the enterprise
In the short term, increase the minimum wage would increase the employment costs and increase operational burden to businesses, especially businesses of light industry, household appliances and other fields. With Australia’s highly competitive between businesses, corporate profits are very small, corporate human costs could lead directly to losses and difficulties. Minimum wage will give another threat for the businesses to come out of the financial crisis. Many businesses, the majority of which are small private enterprises, have formed a new cost pressures. From an international point of view, in some production areas, the costs of production in Vietnam, India, Mexico, China and other countries are lower than that of Australian, Australian increase costs, is not conducive for international competition.
From the perspective of long term, this initiative will have a significance of adjusting the industrial structure. Enterprise payment of wages has increased and production costs will increase, which forced companies to transfer to the areas with more technical content.
In addition, increase the minimum wage makes the purchasing power of consumers improve. Then they will spend more on consumer goods, so that manufacturers can sell more products, this will reduce losses increased payment.
6.0 The impact of the Australian economy
From the above analysis, the increase of the minimum wage will improve living conditions of the low-paid employees, which promote their consumption of goods and services, and expand Australia’s demand. Meanwhile, because the market demand for enterprise products increases, the market economy status will become well and business group will expand the scale of production. The gross domestic production will have a big improvement.
Raising the minimum wage in Australia will be likely to cause unemployment to increase. The increase in the minimum wage is a severe blow on small businesses, which could delay the economic recovery. In addition, companies may raise prices to transfer the increased costs with the increase of minimum wage, which may lead to price increases in Australia. Inflation may rise in this country.
7.0 Conclusion and recommendations
The increase of minimum wage will have a significant impact on Labor market, employees, enterprises and total economy. It has both positive and negative impactions. Authorities must deal with of the various problems that may arise by raising the minimum wage as soon as possible after the implementation. For a large number of disadvantaged workers may be pushed away from the labor market, the Administration on the one hand should strengthen the weak labor job matching and job training, help them find suitable work and enhance their competitiveness. On the other hand the authorities should provide job opportunities for these disadvantaged workers, such as young people lack work experience. Enterprises should be closely followed up the situation after the implementation of the minimum wage, such as a large number of SMEs that are facing closure due to the increasing cost. The government should lend a helping hand and help them tide over the difficulties. Many of the workers should also receive training and education and improve their vocational skills, so that would not face the threat of unemployment.