Editors Note: This is a guest post written by Edward Mallett, Managing Director of Employsure. His opinions are his own.
There is an interesting story about John Paulson, a hedge fund manager who became richer than Croesus when he predicted the global credit market implosion in 2007. He says that he knew there was a problem when his cleaner asked him whether it was sensible to take out a hefty mortgage to fund the purchase of her fourth investment property. Too much, he thought, time to bet against this.
Google him, it will make you bitter.
In my dreams, I “do a Paulson”.
I imagine that I have made so much money that I can give up advising businesses on workplace relations issues and start bathing in vast pools of money or whatever else you would do if you made $1 billion dollars in the space of a year. The only difference is that my wealth is not built on anything as complicated as credit default swaps, but on the likely collapse of the Australian economy because of the over inflated cost of wages.
My Paulson moment did not occur when speaking to my cleaner (as a humble workplace relations specialist, I am not grand enough to have one), but over the Australia Day long weekend when I went for a coffee.
I turned up at the door of my local café on the Monday morning looking forward to the standard kick start to my day to find a sign saying “closed due to public holiday”. Odd, I thought, surely a day where most of the working population is entitled to loaf is exactly the sort of day a coffee shop should be open.
I spoke to the owner the next day when he re-opened and asked why he had shut.
He told me matter of factly that the extra wages that he would have to pay his staff on a public holiday made it uneconomical to open. He could not make as much money as he would have to spend to do business that day. You don’t need Mr Paulson’s financial acumen to see that makes sense.
This is the same problem that George Calombaris of Masterchef highlighted a few months ago, commenting in the press that “the problem is that wages on public holidays and weekends greatly exceed the opportunity for profit”.
George was slammed by the Labor government for this, who pointed out that he was not short of a bob or two. This seems a childish response, and ignores the plight of my local café and other smaller businesses.
The problem is caused by a highly restrictive wage system. Unlike other developed economies, Australian wages are largely determined by the government, rather than the market. This is done through Modern Awards which dictate what employers must pay to staff who work in specific roles in their business.
The result is that there are thousands of minimum wages in Australia, depending upon what you do, your experience, skills and job title. So, for example, there is one minimum wage for a cleaner and another for a kitchen hand, despite the fact that they might both work in the same place.
These minimum wages are determined in Canberra and often bear no relation to market rates or what a business can actually afford.
My local café is one example, but there are tonnes of others. I know a security business in Adelaide, for instance, which loses money for every hour that it puts someone on the door of a pub on a Saturday night because the amount he has to pay under the Modern Award is higher than he gets paid by the pub to put someone there. He only does the work to ensure he gets the profitable work on other nights of the week.
Don’t get me wrong, I believe in the concept of a minimum wage. But, it should serve to protect the most vulnerable workers, ensuring that there is a realistic “collar” on what people need to earn to live. That is what happens in every other developed economy in the world, including the UK, and it works. People in the UK get paid what they will turn up to work for and, by simple laws of economics, what the business can therefore afford.
Australia is unlikely to follow suit any time soon. Pleas by business for a more flexible labour market are met by scaremonger tactics by the Labor government, who give the impression that we will descend into a land of sweatshops if employers are allowed to choose what to pay. The Coalition knows the issue is too politically sensitive and therefore won’t speak up in any meaningful way.
All the while, both sides of the coin are suffering. Businesses are closing because of high labour costs. At the big end of town, that means that work is being off-shored. At the smaller end of town, like my local café, that means that there are closures despite staff being willing to work for less than the public holiday rate, leaving them with nothing rather than something.
The average wages across countries puts the problem into stark perspective. The average full-time wage in the UK is £26,500, against over $73,000 here. Even with the exchange rate, that means Australians earn almost double their UK counterparts. To me, that says there is something inherently rotten with the system.
Wages being set by the government, rather than market forces, spells out impending economic doom, in my opinion. Now, all I need to do is find someone like John Paulson to help me turn that prediction into riches.
Edward Mallett is a specialist employment law barrister, and Managing Director of Employsure. Employsure is a total risk management solution for employers, protecting them against workplace relations issues such as unfair dismissal, discrimination, breach of contract and harassment in the workplace – all for a fixed annual fee. Follow them on twitter.