PRICE FLOORS – MINIMUM WAGE IN AUSTRALIA

 

 

 

 

 

 

 

PRICE FLOORS – MINIMUM WAGE IN AUSTRALIA

 

 

 

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The business environment fuels its country’s economic development. Governments implement measures to protect industry welfare and introduce changes in varying market forces. Price floor campaigns are a necessary tool as they ensure that income figures are able to cater to individual needs and may at times be increased with focus on both individual and collective needs. The minimum wage is a variation of price floors in the labor industry. Exploring the factors that affect supply and demand in market forces and their implications will provide a basis for analyzing price floor strategies with particular emphasis on the Australian economy.[1]

Price floors are the lowest price acceptable for an item and in national economies they include price controls imposed on consumers or suppliers. Providers of services or goods are referred to as suppliers while agents that utilize the products or services are the consumer market. Price controls can be set above or below the basic equilibrium wage in free market designs. The minimum price requirements are often misunderstood since they are shaped by specific market elements. [2] Take for instance the minimum wage price controls. Income figures are commonly calculated per work hours. Minimum pay is defined by qualification, industrial dynamics, and special circumstances such as disability.

Investing in new technology or strategy involves calculated risks, but a nation is still exposed to undesirable downside effects. Globally, nations are adopting innovative solutions to address the climate change concerns. [3]Australia anticipates massive shifts in investment to facilitate the low carbon emission plans in industry development. Such investments expose the country to excessive price drops as the significant investments are increased. Carbon prices are flexible and there is a risk that the figures may drop to unacceptable levels.

Price floor guarantees promote investment in the initial stages of project implementation. The price floors enable investors to mitigate unfavorable economic conditions because the price floors introduced guarantee a desirable transition in market forces once prices change from the fixed levels to flexible free market dynamics. [4]The Australian government is in a position to choice of product supply whether international or local levels support trade economics.  The local prices are maintained at fixed prices while the international cheaper options that are competitive can be utilized.

The principle is relevant in Australian minimum wage price figures depending on the specific features. Employees in a training capacity, those with disability, and junior workers are covered in the national minimum wage feature.[5] Fair Act laws define the group that will set, implement, and monitor minimum wage concerns.  During transitions in industry mechanisms, changes in investment patterns expose employees to risks such as reduced wage or layoffs. Price floor measures in minimum wage dynamics ensure the labor market is protected during transitions.

In Australia, the Fair Work Commission establishes the minimum wage figures. The minimum wages are reviewed depending on their nature. Modern award figures define the minimum wages for employees that are paid according to an established agreement. The national minimum wage is set to $17.29 for every hour.[6] Special national minimum wage is classified into five segments: disability that has no implication on productivity, disability that restricts productivity, trainees, apprentices, and junior employees.

Despite the relatively higher minimum wage feature, Australia has avoided common economy repercussions associated with high minimum wage incentives. However, the minimal raise between 2014 and 2015 does not address the widening gap in income earnings. Average weekly wages are higher than minimum wage figures, and the gap creates challenges in equilibrium dynamics.[7] Rising costs in healthcare and education reduce any hope minimum wage increments offer.

The Australian government targeted a smaller than expected minimum wage increase as a measure to protect employment opportunities. Market equilibrium forces demonstrate a rise in supply for labor once the minimum wage is placed above expected margins in a free market analysis. [8]The increase in wage figures discourages companies from seeking employees, therefore increasing the rate of unemployment. The outcome would be a surplus of labor available as skilled and unskilled laborers are attracted by the high pay rates, while demand for labor diminishes.

Furthermore, price floor increases have limited impact in economies that consequently impose targeted tax incentives on the industry. Australia’s taxing strategy aims at supporting the middle income bracket, therefore promoting small and medium business projects. The factors that influence inefficiency in market equilibrium prospects lead to deadweight loss. [9]In order to understand deadweight loss in the Australian labor market it is necessary to explain its dynamics.

Deadweight loss is defined as the innefiency that occurs between demand and supply forces whereby a state of equilibrium is not achieved. In free market concerns, deadweight loss is a product of price control alteration deviating from the equilibrium. The supplier’s surplus and the buyer’s surplus are at risk of reduction as demand for goods and services increases or decreases. [10]Loss of surplus is commonly associated with deadweight loss. However, due to unfavorable trade dynamics created by the controls placed above or below the equilibrium mark, illegal activities are common. In minimum wage controls, companies and employees may attempt to engage in agreements that contradict the established framework. The end result may involve fewer hours or lower payment levels.

Take, for instance, an example of an arrangement between a supplier and consumer within the agricultural industry.  Once price floors are introduced, the price control is raised or lowered. Once price limit requirements are raised on a particular item, the suppliers are encouraged to sell more while the consumers may cut their spending habits and buy less. The changes are necessary due to the deadweight loss imposed on the consumers.[11] The changes in market economics include an increased supply of commodity and a decreased demand. The opposite occurs when price floor features are significantly reduced.

Price floors are therefore necessary restrictions that may be enforced to control market dynamics that are controlled by monopolies. Government agencies that establish specific departments to monitor and control trade concerns need to amend price control requirements prioritizing the interests of stakeholders who are vulnerable.[12] In minimum wage price floors, the high minimum wage implemented exposes the economy to misallocation of resources that eventually results in the deadweight loss. Australia is an excellent case study showing that it is possible to have a high minimum wage policy and display an impressive low taxation burden.

 

 

 

 

 

Bibliography

Briggs, Chris, John Buchanan, and Ian Watson. Wages Policy in an Era of Deepening Wage Inequality. Canberra: Academy of the Social Sciences in Australia, 2006.

Carson, Jessica A. Who Would Be Affected by a New Minimum Wage Policy? Durham, N.H.: Carsey Institute, University of New Hampshire, 2013.

Dragusanu, Raluca, Daniele Giovannucci, and Nathan Nunn. 2014. “The Economics of Fair Trade”. The Journal of Economic Perspectives. 28, no. 3: 217-236.

1. Rob Bray. Reflections on the evolution of the minimum wage in Australia: options for the future paper. n.d. <http://apo.org.au/node/34393>.

Hirsch, Barry T., Bruce E. Kaufman, and Tetyana Zelenska. Minimum Wage Channels of Adjustment. Bonn: IZA, 2011. <http://ftp.iza.org/dp6132.pdf>.

Leonard, Thomas C. 2000. “Part 1 Economic Techniques and Practical Problems – The Very Idea of Applying Economics: The Modern Minimum-Wage Controversy and Its Antecedents”. History of Political Economy. 32: 117.

[1] Barry T. Hirsch, Bruce E. Kaufman, and Tetyana Zelenska, Minimum Wage Channels of Adjustment (Bonn: IZA, 2011). <http://ftp.iza.org/dp6132.pdf>.

 

[2] Ibid.

 

[3] Ibid.

 

[4] Ibid, 13-23

 

[5] Ibid, 34-36

[6] . Chris Briggs, John Buchanan, and Ian Watson, Wages Policy in an Era of Deepening Wage Inequality (Canberra: Academy of the Social Sciences in Australia, 2006).

 

[7] Ibid.

 

[8] Ibid.

[9] Jessica A. Carson, Who Would Be Affected by a New Minimum Wage Policy? (Durham, N.H.: Carsey Institute, University of New Hampshire, 2013).

 

[10] Thomas C. Leonard, “Part 1 Economic Techniques and Practical Problems – The Very Idea of Applying Economics: The Modern Minimum-Wage Controversy and Its Antecedents”. History of Political Economy. 32 (2000): 117.

[11] . J. Rob Bray. Reflections on the evolution of the minimum wage in Australia: options for the future paper. n.d. <http://apo.org.au/node/34393>.

 

[12] . Raluca Dragusanu, Daniele Giovannucci, and Nathan Nunn. “The Economics of Fair Trade”. The Journal of Economic Perspectives. 28, no. 3 (2014): 217-236.