Wednesday, April 07, 2010

The Downside of Higher Minimum Wage

Since arriving, I’ve been astonished at the higher cost of living in Australia.  But it’s not across the board.  Electronics manufactured in China aren’t unreasonably more expensive than they would be in the States.  In some cases they cost the same.  But things like cars (that are locally manufactured even though they are foreign companies), food (grocery and restaurant) and other services can be three or four times as expensive as they are in the States.  What’s the link?  It’s probably a good thesis for some economics student (if it hasn’t already been done), but my speculation is that this is caused by a higher minimum wage.  Australia’s minimum wage is about AU$15 (about $13.90 US).  As you look at things that are significantly higher, they also tend to be more dependent on minimum wage workers.

At what point does the cost of living impact of minimum wage increases zero-out the income gains?  And if cost of living is impacted by minimum wage increases, at what point is it affecting the population and economy at large to a worse extent than it is benefitting minimum wage workers?

I don’t have answers or even ideas.  Just observations at this point.  Maybe it will be in Super Duper Freakenomics???

1 comment:

  1. Tony - saw the link to your blog on Linked In. Enjoyed the cultural and economic observations. Having been in the corp (not at A&M) I understood what holding a sword over Bushes head meant...I'm guessing some folks would think that bizarre. Windshield wipers on = turning left -- let's everyone know you're a Yank!