Sunday, March 27, 2011

Stunning Fact 2: Australia's $15.30 Minimum Wage

Australia's minimum wage is $15 australian or $15.30 US at an exchange rate of $1.02 US dollar per $1 Australian.  That would guarantee mass unemployment, right? Not in Australia.

Australia's unemployment rate in February was 5%.  How could it be?

First, Australia's as well as Canada's banks were tightly regulated and did not implode on September 15, 2008 when Lehman brothers went bankrupt, causing US credit markets to shut, pushing US job loss to 500,000 in October 2008 and over 700,000 in just January 2009.

Second, Australia's mineral resources, coal, gold, and more, are booming due to Asian demand.

If you have other possible explanations for Australia's low unemployment and/or the highest minimum wage in the world, please provide a comment.


  1. Nice post. The Minimimum Wage fight here is one of the best wins I've ever been a part of in PA, but we all knew it was paltry, even then.

    So Australia doesn't have the natural resources curse? How?

  2. Obviously the minimum wage isn't the only thing that can affect employment. Other factors include the regulatory burden on small companies, the level of tax on companies and individuals, the availability of skills among employees, the attractiveness of the country to foreign investment, the availability of loans, the presence of a successful export industry, the inflation rate, the level of uncertainty in the economy, etc.

    I believe that having a minimum wage increases the unemployment rate by at least 2 percentage points in most countries. So Australia could probably do a lot better than 5% without it.

  3. Perhaps the natural resources curse is a fallacy. Peace, the rule of law, and economic freedom are the primary drivers of economic growth. If you look at poor countries with a lot of natural resources they inevitably fare poorly on one or more of these three things.

    On the other hand, countries with few natural resources relative to their population are often very prosperous, such as Singapore, Hong Kong, Japan, South Korea, and to a lesser extent Western Europe. Meanwhile most of South America, Africa, and Russia are impoverished while being blessed with abundant natural resources. But without the societal infrastructure of the rule of law and economic freedom, the people are either unable or not incentivized to be productive with those resources and their skills.

    You might say a lack of education is at fault. While education is certainly valuable, you see that countries that become prosperous first increase in prosperity and later increase their education level once they have the spare resources to do so. America was the wealthiest country in the world when most Americans had only an 8th grade education. It does no good to have a highly educated population that is paralyzed by a weak rule of law and protection of private property (many African countries) or by a maze of regulations and high taxes (like in India, although they are reforming in the right direction).