Why minimum wages are a fantasy

The success of Mad Men, the racy TV series about the advertising industry, contributed to the number of people wanting to get into the industry and pushed wages right down. The average annual wage of an advertising account executive is $53,000, an hourly wage a bit over $24. But the expectation is that account executives work far longer hours, depressing the effective hourly rate well below that – easily below the official national minimum wage in some cases.

Unpaid internships

Not only do many people accept these terms, they’ll even do unpaid internships to secure them. And if a percentage decide the job isn’t worth the pay, they are quickly replaced by a new cohort of eager graduates who’ll count themselves lucky to get the role. The difference between the minimum wage and their effective hourly rate is what it’s worth to them to be in that job.

NSW Opposition Leader Michael Daley doesn’t have to worry about falling below the minimum wage, even if he works 24 hours a day, 365 days a year. But to show us how much he wants the job of Premier, Daley has taken to boasting that he works from 5:30 in the morning, averages six and a half hours’ sleep a night, and has only had two days off over the last four months. This is expected in politics, especially around campaign time, but clearly exceeds the average of a 38-hour week stipulated by the Fair Work Act. He really wants that job and he’s happy to effectively reduce his pay and conditions to get it. And, of course, because Gladys Berijiklian really wants to keep the job he’s gunning for, she’s forced to do the same. That’s just what it’s worth to them.

Adam Smith predicted the effect. In his day, singing, acting and dancing were considered low status – “a sort of public prostitution”. This kept wages high for people in those professions. But, he wrote, “should the public opinion or prejudice ever alter with regard to such occupations …more people would apply to them, and the competition would quickly reduce the price of their labour”. You don’t need to tell that to an Uber-driving actor.

Systematic and deliberate

Sometimes the deals people make can sound uncomfortably like coercion. In 2015 a Fairfax-Four Corners investigation revealed that workers at some 7-Eleven franchises were being paid half the $24.50 award rate. The underpayment was systematic and deliberate, with payroll records and timesheets doctored. The employees were international students, who wanted to stay in Australia. They needed to earn money somehow and feared reporting the below-award wage conditions would lead to their visas being cancelled. That’s a terrible situation to be in, but is it so different from the unreasonable hours put in by an advertising executive or a politician? It wasn’t slavery; they were free to go. We know exactly how much it was worth to the 7-Eleven workers to stay in Australia: $12.25 an hour.

We’d all like to have higher wages and better conditions. But our actions reveal what we are willing to accept.

Slow wage growth is frustrating Australians, so policy makers have to look at what they can do. Breaking our university addiction might help. Changing attitudes to employment might, too. “The trade of a butcher is a brutal and odious business,” writes Smith, “but it is in most places more profitable than a greater part of common trades.”

The quickest way to raise wages is to do more of what other people can’t or don’t want to – as individuals and as a nation. The choice is ours. You can’t legislate to change the truth.

Parnell McGuinness is managing director of Thoughtbrokers.

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