Thursday, October 26, 2006

Minimum wage increase: a triumph of public choice theory?

How are we to explain the decision of the Fair Pay Commission? The fact that its decision is close to the ACTU's claim is taken by the government as evidence we don't need the ACTU effectively, but it is probably similar to what the Australian Industrial Relations Commission (AIRC) would have handed down (graph shows how its post-1996 decisions came closer to those of the ACTU over time, from Age, 7.7.05). Historically the AIRC and its predecessors were often guided by self-preservation. To retain role in wage-fixation it had to roll with market forces or employers and unions would collectively bargain outside the AIRC for higher wages. This didn't stop Treasury as Greg Whitwell shows often assuming that the AIRC had power to set wages of its own accord. Braham Dabscheck argued that the AIRC made a major error in its early 1990s opposition to enterprise which encouraged the Labor government to legislate to reduce its role, a policy which the Howard government carried further. In the early 1990s the labour market trends actually favoured the policy direction of the AIRC but not that of the government and it is the government which legislates. The Fair Pay Commission knows it will be legislated out of existence if Labor wins the next election, self-preservation dictates a Coalition victory, and this decision is favourable to that objective. Perhaps as public choice theorists would argue this is the only explanation we need. As the fate of ATSIC shows statutory authorities can not be too critical of governments. It is obvious Ian Harper and Judith Sloan the brains of the Commission, Sloan is the more partisan figure and my guess would be she calls the shots. When Harper was appointed many mulled over his work in search of guidance as to Commission policy, nobody commented on Economics and Ethics but it is very vague. The Australian can’t make up its mind and floats a negative income tax, I don’t doubt that some proponents of such a measure, such as the Five Economists, are sincere, but the Howard government is committed to many expenditure (vote-buying programs) programs and has no incentive to accept the advice of its friends on this issue.. Remember all of those sermons from Paul Kelly etc., who had obviously never read an AIRC minimum wage case, on how outrageous it was that the AIRC was not taking into account government payments, it all seems rather silly now that the Fair Pay Commission has been similar? Still the statutory independence of the FPC like the Reserve Bank could as Stephen Bell has argued for the Bank be convenient for governments.


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