Monday, June 12, 2017

Minimum Wage hikes don't cost jobs (?)

As the article below says, this is a contentious subject with evidence either way. The law of supply and demand is very much an 'iron' law, one incapable of repeal.  So increasing the price of labour must reduce the demand for it. And labour costs are a major part of costs for most businesses so the effect should be pretty obvious.

That is however in a "ceteris paribus" situation and other things are not always equal. A very old observation on the matter -- going back to Henry Ford and persuasively argued in modern times by Ron Unz -- is that workers are also buyers so giving them more money means that they will spend more and thus increase demand -- which will in turn increase the income of businesses, thus enabling them to pay their workers the mandated rise. That is something of a perpetual motion argument but is probably partly true.

A less adventurous argument is that large pay rises tend to be granted in periods of prosperity so the empoyer can afford them and all that happens is that the balance of returns to labour and capital is restored.

The least persuasive argument is that higher wages tend to incentivize higher productivity, thus enabling the boss to pay more.  That may happen but only in isolated instances, one would think.

Australia is in a very different situation to the United States.  Minimum wages are almost always set nationally in Australia, whereas American minima can be set Federally, Statewide or even on a municipal basis.  And high municipal minima do tend to spark evasion in the USA.  Businesses simply move out of town to where the set wages are lower.  Seattle appears to be an example of that. So the law of supply and demand is as reliably present as ever in the matter of minimum wages. 

So, from that example, my conclusion is that offsetting effects are probably large in Australia but unregulated wages would probably still generate higher levels of employment

What was it thinking? On Tuesday, the normally hard-hearted Fair Work Commission drove up the cost of labour 3.3 per cent. From July 1 the full-time minimum wage jumps from $34,975 to $36,135 – that's an extra $22 a week, the biggest increase in ages.

It will spread far beyond the lowest-paid. The Commission believes that 23 per cent of Australian workers, almost 1 in 4, will benefit from the flow-on increase to awards. And it'll spread further, to enterprise agreements that need to compete with awards.

It'll cost jobs. There are "experts" who say so. "It's just got to be reducing employment, it's just got to be," said one, quoted in the Financial Review. Business will be forced to "reduce costs through cutting jobs or other investments," said another, in The Australian.

You'd think so. If a business' costs go up and its income doesn't, it'll have to cut back. It makes sense.

Just as it makes sense to think that lower class sizes improve educational outcomes.  They ought to. But while that's obviously true in extreme cases (if class sizes or wages were increased tenfold, it would hurt), normal-size adjustments, of the kind that are usually made, seem to have no effect whatsoever. And these are some of the most intensively studied questions in economics.

I'll leave class sizes for another day. On wages, the commissioners said those studies had "fortified" its view that modest and regular wage increases "do not result in disemployment effects".

The latest, and most damning, is a seven decade-study released in May by the United States National Employment Law Project entitled Raise Wages, Kill Jobs?

"If the claims of minimum wage opponents are akin to saying 'the sky is falling', this report is an effort to check whether the sky did indeed fall," the authors say.

They examined each of the 22 increases in the US federal minimum wage between 1938 and 2009 to determine whether either employment or hours worked had dropped in the year that followed.

"The results were clear: these basic economic indicators show no correlation between federal minimum wage increases and lower employment levels, even in the industries that are most impacted by higher minimum wages," they reported.

We find it hard to believe that modest wage increases don't cost jobs, because they ought to.

"To the contrary, in the substantial majority of instances (68 per cent) overall employment increased after a federal minimum-wage increase. In the most substantially affected industries, the rates were even higher: in the leisure and hospitality sector employment rose 82 per cent of the time following a federal wage increase, and in the retail sector it was 73 per cent of the time."

"Moreover, the small minority of instances in which employment declined, all occurred during periods of recession or near recession. That pattern strongly suggests that the few instances of such declines are better explained by the business cycle than by the minimum wage."

They go on to observe that their findings aren't really surprising. Study after study has found the same thing.

We find it hard to believe that modest wage increases don't cost jobs, because they ought to. Where's the employer going to find the money? But cutting jobs can cost money, and the money can come from higher prices and from getting more out of each worker, so-called productivity growth. Of late productivity has been growing faster than wages, so the commission's decision puts things back into balance.

And partly because when workers are paid more, they stay more and become better workers, and even become better ambassadors for the businesses that employ them. And because, occasionally, wage increases are really big. When they are big enough, low wage workers become higher wage workers and spend more, especially in shops and food outlets, the kind of industries that are likely to employ them.

There's just a chance the commission knows what it's doing.


Awards council drops 'Australian of the Year finalist' line from Egyptian con-woman

The National Australia Day Council appears to be mainly a Leftist do-gooder outfit not in close touch with reality. They even honoured false-prophet Tim Flannery once.  This latest episode is more evidence that their awards are idiosyncratic and not to be taken seriously

The organisation behind the Australian of the Year awards has watered down its biography of accused fraudster Eman Sharobeem in an apparent move to distance the disgraced finalist from its flagship awards.

The National Australia Day Council this week dropped a reference to Ms Sharobeem being an Australian of the Year finalist from an official profile on its website after questions from Fairfax Media.

Fairfax Media approached the National Australia Day Council about the impact of a corruption investigation into Ms Sharobeem and whether the council had reviewed vetting procedures on nominees.

In response, the council issued a statement, saying it would defer a response until after the Independent Commission Against Corruption finished an inquiry into allegations the former head of two publicly-funded community organisations defrauded taxpayers of more than $600,000, including spending on personal goods such as Botox, jewellery and a Mercedes.

But the council also sought to ring-fence its highest awards from the taint of its former ambassador, asserting she was part of a lesser category as a "NSW Local Hero category finalist in the Australian of the Year Awards" and not an Australian of the Year finalist.

Fairfax Media questioned the claim, directing a spokeswoman to the Australia Day council's own website on Wednesday morning. It described the one-time high-flying ambassador for the organisation as a "finalist for Australian Of The Year 2015". A screenshot was saved at 11:20am.

Shortly before 5pm, another council spokesman, Damian Tunney, emailed Fairfax, dismissing questions about the council describing her as an Australian of the Year finalist, stating the profile "uses the phrase 'finalist in the Local Hero category for the Australian Of The Year Awards in 2015…'".

A check of the website against the earlier screenshot revealed the content had been changed after Fairfax Media's inquiry.

Asked why the page was changed, Mr Tunney said "that the website has been updated since your enquiry this morning that highlighted the ambiguity".

While the council showed tremendous haste changing the description of Ms Sharobeem's award, it has not removed the title "Dr" nor claims of previous jobs in her professional biography that have been dismantled by the ICAC and Fairfax Media stories over the past four months.

The council has not responded to questions about whether it vetted her background before she was shortlisted as a category finalist and made an awards ambassador. Nor has it responded to questions about what evidence it had to support calling Ms Sharobeem "Dr".

Fairfax Media has revealed that Ms Sharobeem has had her assets frozen by the powerful NSW Crime Commission, the existence of a secret ICAC investigation and that her claims to have two PhDs and be a practising psychologist cannot be substantiated.

In the wake of the revelations, the ICAC began public hearings last month. Ms Sharobeem conceded to the commission she never studied for a PhD but maintains she received an honorary doctorate in Egypt but cannot provide evidence for it because of a fire during the Arab Spring uprising.

Ms Sharobeem, who was chief executive of the Immigrant Womens Health Services for 11 years until 2015, was photographed receiving a citation as a finalist in the awards by then Premier Mike Baird. Her award contributed to a media profile that helped gain her a series of government-related advisory bodies. The ICAC is inquiring into her use of false qualifications to obtain those positions.

After she left the IWHS she was offered a job at broadcaster SBS which she left around the time of the asset freeze in February.

Ms Sharobeem, who endured a torrid five days of evidence in the witness box last month before being excused on health grounds, is due to return to the witness box for a further three days beginning Tuesday.

Other witnesses still to appear include her sons Richard and Charlie, who are alleged recipients of her fraudulent largesse, and her husband Haiman Hammo, who is alleged to have received a Mercedes partly funded by the taxpayer.


New footage reveals sheer violence of Andrew Bolt attack outside Melbourne restaurant

Alarming new footage shows commentator Andrew Bolt being assaulted on the streets of Melbourne in what he says is an example of how dangerous the city has become for conservatives.

The video, posted on social media on Thursday morning, shows a hooded man approaching Bolt from behind and throwing a substance at his head, initiating a brawl in broad daylight on busy Lygon Street.

The ensuing scuffle sees Bolt pushed into a pole and then falling over chairs and tables outside a restaurant. He fights back fiercely, kicking and punching his two assailants in the face and groin before they give up and start to walk away.

An unknown man shouts "what are you doing?" and "go away" as the brawl concludes.

The assault took place on Tuesday at the launch of The Art of the Impossible, a book on Donald Trump and the 2016 US presidential election campaign by RMIT associate professor Steve Kates.

On Tuesday night Victoria Police confirmed it was investigating the "incident" and was searching for three men: the two assailants plus a third man who was wielding a camera and "appeared to be filming or taking photos".

Police confirmed Bolt was hit with a mixture of shaving cream and glitter.

Speaking to Fairfax Media on Thursday morning, Bolt said he was sick of being targeted for his conservative beliefs and would pursue his attackers for justice and demand a charitable donation.

"I'm not a brawler," he said. "I had one bruised knuckle and I don't care a stuff about it. I had a suit ruined and I want every cent of that paid back. And I want a hefty donation to a charity of my choice."

Melbourne Antifa, a loose collection of left-wing activists united behind "anti-fascist action", appeared to claim a role in the incident, posting on Facebook that "some of our family in solidarity were attacked by Andrew Bolt while they were protesting today".

The group argued Bolt should be imprisoned for his "violent, horrendous language".

Bolt told Fairfax Media the attack was the latest in a long line of threats to the safety of himself, his family and other conservatives in his home city.

"I am sick of people trying to intimidate me, trying to threaten me," he said. "I'm sick of the threats on my life and my reputation. I'm sick of being sued and bullied and I'm not going to take it. I'm just not going to take it.

"We should be free to have a debate and to walk down the street without fear of being attacked.

"The right to free speech has to be better protected – everywhere but particularly in Melbourne. It is ridiculous how dangerous it is for conservatives in this town to speak out.

"If you don't like what I say just prove me wrong. Don't threaten me, don't threaten my house, don't threaten my family, don't abuse me – just argue with me. "It must be a question of the principle and not the side."


Official Australian report says "renewable" power must be backed up by other generators for when renewables don't deliver

Huge costs coming, possibly big enough to derail much more take-up of "renewables"

After widespread power blackouts last summer, the long-awaited Finkel review of the electricity market has put energy security and stability centre stage, with a raft of technical recommendations put to the Council of Australian Governments meeting on Friday. But tackling the more complex issue of how to move beyond the existing renewable energy target remains on the backburner.

A key recommendation is for an Energy Security Board to be established, reflecting the need to ensure widespread blackouts are avoided with the shift to renewable energy as coal-fired power stations are shut down.

But the recommendation has triggered immediate concerns that "going easy" on pushing power generators to cut emissions will place greater pressure on other parts of industry, and the transport sector, to make tougher cuts to their emissions.

In particular, failing to endorse a move beyond the existing target of reducing emissions, by 28 per cent on 2005 levels by 2030, misses an important opportunity. To do so, Chief Scientist Dr Alan Finkel argued, "may have consequences for security, cost and reliability".

"This will set expectations and help to guide investment decisions in the electricity sector by providing an anchor point for Australia's long-term emissions trajectory."

As a result, by pushing for a so-called "clean energy target"  rather than a more rigorous means of cutting emissions such as with an energy intensity scheme, the recommendation won the immediate backing of the energy utilities.

"While we have advocated for an emissions intensity scheme (EIS), ... a clean energy target is a viable policy option and will unleash the necessary new investment in the national electricity market," AGL said, pointing out the review had found the resource costs of such a scheme were relatively similar to both business-as-usual and an EIS.

The clean energy target would be "technologically neutral", the report noted, while also helping to lower long-term emissions. "For example, a mix of wind, solar and coal generation would be equally acceptable as a mix of wind, solar and gas generation as long as the emissions reduction trajectory is achieved."

Both a clean energy target and an emissions intensity scheme "are credible emissions reduction mechanisms because they minimise costs for consumers, are flexible and adaptable, and satisfy security and reliability criteria", the review found. "Both mechanisms ... deliver better price outcomes than business as usual."

However a clean energy target "could build directly on the experience of the renewable energy target" and avoid the need for new trading rules and further complexity and hence be implemented comparatively painlessly.

Energy Action's director of innovation and sustainability, Paul Bannister, said the decision to opt for a clean energy target was "pragmatic" since it may more easily win political support, rather than an energy intensity scheme.

"But this is always open to meddling," he said, warning of the potential for political intervention in the future.

Similarly, while the review has backed the emergence of so-called "micro-grids" any change could be some time off since a review of the relevant regulations will not begin for a year.

"The development of a functioning smart grid where energy users can sell demand reductions and surplus on-site generation in a free-market environment is central to the necessary reforms," Energy Action's Mr Bannister said. "This is essential to ensure a least-cost outcome for energy users and the economy as a whole."

The chief executive of Origin Energy, Frank Calabria, said he hoped the Finkel review "will pave the way for a more co-ordinated national approach to energy and climate policy".

"The important work now begins as industry and governments work together to translate recommendations into actions.

"Getting Australia's energy and climate change policy settings right is crucial to attracting the investment required to maintain a secure and affordable supply of energy to Australian homes and businesses, as we continue the transition to a low-carbon economy."

The release of the Finkel review into the electricity system comes as electricity consumers are bracing for another round of "sticker shock" from surging electricity bills.  Prices in the ACT are rising around 20 per cent, while AGL announced on Friday it would raise charges in NSW by 16 per cent from July 1 and by 18 per cent in South Australia for all households on so-called standing offers, as the surge in wholesale prices flows through to consumers.

Yet while the Finkel review was touted as providing a road map to lower electricity prices, the report failed to indicate how this will be achieved, since it has made it clear substantial new investment will be needed in the long-distance transmission  network, for example, with the cost burden to be borne by all consumers.

Central to the report is boosting the role of renewables and it backs new renewable energy projects having backup systems to help improve their reliability and smooth some of the "intermittency" that has plagued the electricity market.

"It's about time," one energy trader said. "Intermittency is the key issue with renewables. It is not unusual these days to see wind providing 40 per cent of all output. But it is not there at peak demand times, when it is needed.

"This has placed an additional cost on consumers and the other generators. So really, it is 'about time' additional renewables had some sort of back up."

Craig Memery of the Public Interest Advocacy Centre warned this will force consumers to pay "more than they should in the long run".

"Requiring new renewable energy operators to invest in energy storage technologies or come up with other ways of addressing their variable output is expensive and unnecessary," he said. "Placing additional obligations on renewable energy generators runs the risk of using less cost-efficient approaches, which translates to higher costs for consumers."

But higher charges are unavoidable with the need to build more transmission lines to accommodate more renewable energy plants.

"There is a lot of infrastructure spending coming," warned Gavin Dufty, policy officer with the St Vincent de Paul Society. "That raises the issue of who pays for it and how it is allocated – and that's quite regressive", referring to the fact that the cost will more likely fall heaviest on households and businesses who can't afford to install solar systems, and the like.

"If you go on a big infrastructure spend, households and small businesses will pay – but you need to allocate that cost in line with people's ability to pay. System security doesn't come cheap. This transition is costly. It is one of the biggest infrastructure challenges we've got – this is big dollars, and will wash through onto the household bill."

The Finkel review warned that newer renewable power generators "will likely be smaller in scale but more numerous than coal-fired generators, so a more co-ordinated approach to transmission planning is required". As part of this, it wants "a long-term, integrated grid plan ... to establish an optimal transmission network design to enable the connection of new renewable energy resources".

"Co-ordination of generation and transmission investment so that networks connect the areas with the best renewable energy resources, at an efficient scale, will be a critical challenge. Transmission businesses need to be incentivised to build the network infrastructure required for the future of the [national energy market], but not to build unnecessarily."

As BusinessDay reported when the federal government first unveiled its plan to boost capacity of the Snowy Hydro scheme in early March, the headline cost of $1.5 billion-$2 billion would double once the need for upgraded transmission links was taken into account, which was confirmed earlier this month in Senate estimates hearings.

And it has gone unnoticed that on the back of the plan by the Victorian government to lift to 40 per cent the supply of electricity sourced from renewable energy within the next decade, plans are already afoot for as much as 5000 megawatts of new renewable projects in western Victoria alone, of which Australian Energy Markets Operator reckons 3000 megawatts will probably be built. But if the AEMO forecast proves to be conservative and the full 5000 MW is built, that would be more than enough to replace three times the capacity of the recently shuttered Hazelwood power station (1600 megawatts), and more than Loy Yang A (2200Mw) and Loy Yang B (1600Mw) combined.

According to AEMO, this will need heavy spending on the transmission network throughout that part of the state to get the power to market, with private estimates that the cost could run to several billion dollars. And unless the network companies are paid to build those links, that renewable energy won't find a home.

"Without network investments to improve [network] strength, the 3000 megawatts of new renewable generation may still be constrained or disconnected," AEMO warned in a recent report, "even after investments to improve network thermal capacity have been carried out."

"Adding 4000 or 5000 megawatts would need a major transmission upgrade of $3 billion-$4 billion," one senior power industry figure said. "There appears to be a 'cargo-cult' mentality taking hold – build it [the network] and they will come. By going about this process the way it has, via a  so-called 'regulatory investment test for transmission' this will push up consumers' bills, since they will have to foot the cost of the expansion and the ongoing cost of operating it.

"There is an existing approach under the electricity market rules which allows for 'scale efficient' network expansion. Under this approach, the builder of the additional generation capacity pays for the network upgrade, which is only fair since it will profit from the move.

"By adopting the approach put out there by AEMO for this network upgrade, this will add to the bills of all electricity users. These upgrades should only proceed if paid for by the generator."


Posted by John J. Ray (M.A.; Ph.D.).    For a daily critique of Leftist activities,  see DISSECTING LEFTISM.  To keep up with attacks on free speech see Tongue Tied. Also, don't forget your daily roundup  of pro-environment but anti-Greenie  news and commentary at GREENIE WATCH .  Email me  here

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