Documents menu

Low pay, no way! Solving the jobs crisis

By James Vassilopoulos,
in Green Left Weekly
2 August 1997

When asked on radio 2GB on July 7 about the United States' "low" unemployment, Prime Minister John Howard said: "We have as a nation over the years adopted as part of our ethos a higher minimum wage than many other countries. Now, one of the consequences is that you do have a higher level of unemployment ... there is no doubt in the world that the Americans do have much lower minimum wages."

Even prior to Howard's comments, the commercial press was promoting the US government's economic policies with headlines such as "Why it's boom town USA" in the June 5 Sydney Morning Herald, or Anne Summers' article "There's dancing in the streets" in the July 20 Sydney Morning Herald, or the article in the June 20 Australian Financial Review entitled "How the US has licked unemployment".

Their argument is that the US has a low unemployment rate compared to Australia because it has lower minimum wages, a more flexible and mobile work force, and a more deregulated labour market. If Australia were to follow suit and lower minimum wages and unemployment benefits, they claim, this would alleviate the unemployment crisis. And anyway, they say, a low paid job is better than no job.

Howard's talk about "debate" on the issue is code for his plans to implement a lower minimum wage. His repeated calls for more flexibility and mobility in the Australian work force are code for more cuts in conditions and letting the employers run the show.

As has occurred in the US, a cut in the minimum wage here would put enormous downward pressure both on other workers' wages and on unemployment and other welfare payments.

A minimum wage that is little more than unemployment benefits would mean there is no financial reason to work, especially because it actually costs workers' to travel to, dress for and eat at work.

This downward pressure has already begun -- the introduction of youth training wages was quickly followed by the abolition of the dole for under 17 year olds.

In the context of high unemployment, a lower minimum wage would enable employers to cut other wages down to the minimum or approaching the minimum wage. Threatened with replacement by a worker from the queues of unemployed, many workers would have to accept lower wages.

While Howard is calling for a cut in the minimum wage (whatever happened to "no worker would be worse off" under his government?), profits are booming. According to the Australian Bureau of Statistics, total profits before income tax in 1995-96 were $24.8 billion. In 1991-92 they were just $12.3 billion. Most working-class people would be well pleased with a 102% increase in their income over four years.

Howard and the big business media's argument is full of falsities.

First, the official unemployment rate in the US does not reflect reality. According to May 1997 US Department of Labor statistics, in April the unemployment rate in the US was 4.9% or 6.7 million people -- apparently much lower than Australia's rate of 8.6%.

But to the 6.7 million officially unemployed, we need to add 4.8 million who are not officially in the labour force because they do not fully satisfy the criteria (available and actively seeking work), but who do want a job. We also need to add the under-employed (part-time workers who want more hours), another 4 million. This takes the real unemployment rate to around 12%.

Furthermore, the US can hardly be said to be "licking unemployment" when it had an official youth unemployment rate at the end of 1996 of 34.3% and a rate among African-Americans and Hispanics that is often double that of whites.

Secondly, Howard failed to mention that the US's lower minimum wage and lower non-wage costs result in a much higher level of poverty and wage inequality.

According to the January 21, 1996, Left Business Observer, the "United States has the most unequal distribution of income among the Luxembourg Income Study countries [an international database of income and its distribution] and probably anywhere in the First World".

Forty million people in the US live in poverty -- 14.5% of the population. Some 18% of full-time workers live below the poverty line. At least 12 million workers earn US$5 an hour or less. Many immigrants without a green card (the legal document required to work in the US) earn much less than this.

Free labour within prisons and "work for welfare" schemes have taken the jobs of other workers. The Workfare scheme in New York City, for example, has more than 35,000 workers, whilst recently 500 union members lost their jobs.

More generally, Howard's statement that there is a trade-off between wages and unemployment does not hold up. Spain and Ireland have low labour costs but extremely high official unemployment rates (22.7% in Spain and 12.9% in Ireland according to 1995 OECD figures). Norway has a centralised industrial relations system and high wages but an official unemployment rate of only 4.9%.

In Australia since the late 1970s, there has been a large increase in the rate of unemployment. In 1977, it was 5.6%; today it is 8.5%. Yet since 1983 real rates of pay have fallen in the order of 17-28%, depending on the award.

According to the International Labour Organisation report World Employment 1996/97: "Labour market rigidities [including decent wages and working conditions] have not been increasing over the period of rising unemployment; if anything labour markets have become more flexible."

The April 3, 1996, Left Business Observer points out that in all OECD countries there is no link between inequality and low wages, and unemployment; the relationship "is about as good as random".

The clearest refutation of the low wages equal low unemployment argument lies in the Third World. Eighty per cent of the world's population live in these countries, which are characterised by low wages and high unemployment. This is a result of the role these countries are assigned in the international capitalist division of labour -- producing cheap commodities (e.g. raw materials and agricultural products) for manufacturing in the advanced industrialised countries.

Unemployment statistics for Third World countries which take into account the huge informal sector of the economy are difficult to find. However, real unemployment rates of over 20% and wages of less than A$10 a day are common. The huge decreases in real wages in many Third World countries over the last couple of decades have in no way alleviated their unemployment crises.

Unemployment is not a result of wages being too high. It is a problem inherent in the capitalist system.

The long wave of stagnation in the capitalist economy which arose in the mid-'70s is reflected in lower growth rates,

higher worldwide levels of unemployment and increased poverty. Booms and recessions occur as modifications of this longer period of stagnation.

To compete, each capitalist must constantly strive to reduce production costs by lowering wages and investing in labour-saving (shedding workers). Lower wages and more unemployed people mean workers can buy fewer commodities, exacerbating overproduction.

This economic system is driven by the need to maximise profits, not employment. Because there is no social control over how those profits are used, there is no guarantee that increased profits will result in more jobs.

The only way that capitalism can attempt to solve the crisis of a declining rate of profit is by destroying the capital stock or by rolling back the gains in wages, conditions and public welfare made by the working class since the turn of the century.

Statistics on the US economy in the May 14 Left Business Observer clearly reveal the crisis in even the strongest economy in the world. For the years 1945-1990, the US economy during periods of expansion averaged growth in employment of 3.4% per year, earnings 1.4% and gross domestic product 4.4%. For the 1990-97 period, average employment grew by 1.8%, earnings declined by 0.1% and GDP grew 2.7% per year

With the next recession, unemployment levels will go up again. Each capitalist boom never quite lowers the unemployment rate below the level of the previous boom.

Howard's rhetoric about solving the unemployment crisis is just that. He will not and can not fix a crisis that is intrinsic to the world economic system. However, by linking the supposed solution to unemployment to lower wages, Howard can and is trying to increase the profitability of his corporate mates.

Saying that the capitalist rulers will not move to eradicate unemployment does not mean that it cannot be done. The introduction of a 35-hour week in Australia, for example, where the average full-time worker now labours for 42.4 hours a week, would create more than 1 million jobs.

Even more jobs could be created by governments if they were prepared to increase corporate and income tax rates on high incomes.

The profit rates of big business are still more than sufficient to fund a shorter work week with no loss in pay. The French trade unions understand this and are campaigning strongly for just that.