When debating raising minimum wages, proponents will often point to Australia and Finland as examples that contradict the warnings from (typically American) economists. On the surface, this seems like a fair point. After all, from our American perspective, things in Australia seem fine (other than the fact that even the trees are trying to kill you) and Finland has been romanticized as a triumph of progressive politics “done right.” But before minimum wage proponents declare victory, we should read the fine print.
Looking beyond the simple story of “higher minimum wages” and into the underlying structures of these countries’ respective economies reveals a web of exemptions, alternative employment structures, and differing educational emphases. Mandated high minimum wages with built-in escape hatches and exemptions large enough to drive a truck through are not really “minimums.”
The Land of Oz
Australia loves to mention that they have one of the world’s highest minimum wages, at $24.95 per hour (the equivalent of about $16.16 in USD). This headline-grabbing figure only tells part of the story, however, as there are exemptions to this depending on an employee’s age, industry, and myriad other conditions. Helpfully, the Australian government has put together a Pay and Conditions Tool to help figure this all out. As a rough approximation, a person who is 17 years old can roughly count on a minimum wage equal to about 60 percent of the “adult” pay rate, giving them an effective minimum wage of $14.42 ($9.34 USD) and $17.04 on their 18th birthday ($11.04 USD).
But what about workers with a disability? The Department of Social Services will determine how much a disabled worker will be paid based on the nature of their disability. Under the Supported Wage System, “a special workplace arrangement can be made for employers to pay wages to a person with disability based on how productive they are in their job. Under [this system] an employee’s work capacity is assessed to find out their rate of pay… For example, someone with an assessed work capacity of 70 percent is entitled to 70 percent of the relevant pay rate in their award or registered agreement.”
In other words, the Australian minimum wage that Americans have heard so much about only applies to people without disabilities who are at least 21 years old, and even then, only sometimes. But this still doesn’t scratch the surface of the employment situation in Australia. Most of the jobs where the minimum wage actually applies are in industries such as restaurant and retail, where the work is so highly standardized that there are no real, appreciable productivity gains year over year. Are we really to believe that a 21-year-old waitress carries plates or restocks inventory 44 percent better than her 18-year-old counterpart?
As a result of the age-based pay scale, Australian workers in these industries are laid off at a disproportionately higher rate as they approach their 21st birthday, though effects can be seen at every birthday up until the worker turns 21.
Employers defend this system with a simple story: young workers lack experience and are therefore less productive because they’re still learning. They need training, which costs money, and are consequently paid less to “pay for” the training they receive on the job.
It’s a nice story and one that comports with much of what Americans might experience, too. The truth is that many young workers in Australia have already completed pre-employment training, earning certificates and such, before they even start work. And in the sectors where the junior minimum wages are most common, the work is highly standardized, such that there isn’t much productivity gained between 18 and 21.
That said, there are legitimate programs where younger workers earn lower wages than their older counterparts. Australia’s apprenticeship program is incredibly robust. A first-year electrician earns around 60 percent of the wages of a qualified tradesperson because they are genuinely learning and getting demonstrably better each year thanks to the supervision and training they receive from their more senior coworkers. Wages in these settings increase not because of age, but because competence grows, and by the time the worker has completed their training, they earn full rates and have a valuable qualification they can take with them elsewhere, not to mention an all-important line on their resume attesting to their productivity.
Finnish Wage Floors
Unlike America and Australia, Finland actually does not have a formal, statutory minimum wage. Instead, they use collective bargaining agreements, which cover somewhere around 90 percent of workers. Like Australia, however, they also have exemptions for workers who are “training” or in “apprentice programs.” The difference is that in Finland, the training programs last for a specific amount of time irrespective of the employee’s birthday. They’re based on skill, not age.
Finland also boasts a remarkable vocational and education training program (VET) that “provides students with knowledge and skills necessary in further studies and promotes employment.” According to their own figures, around half of the students who complete their basic education in Finland matriculate on to VET rather than “general upper secondary education.” In other words, at around the age of 16, roughly half of the students decide to go into vocational training rather than continue on to what Americans commonly refer to as “college.”
While Finnish students are enrolled in the VET, they can work for pay at the agreed-upon rates covered by the collective bargaining agreement through formal apprenticeship programs. According to the European Centre for the Development of Vocational Training, about 26 percent of VET students are enrolled in such a program. The remaining 74 percent, however, are either in the classroom or are engaged in “training agreements,” some of which allow the student to be unpaid while being formally employed. Others are informal, handshake agreements “under the table” whereby the student is not an employee and thus receives no wages.
Thus, what Finland has is a high, collectively agreed-upon wage floor. But they do this by pushing most of the vocational training into the (unpaid) education system. The high wage floor exists, but workers don’t get to stand on it until they’ve completed their training, formal and sanctioned or otherwise.
Reforms in America
The next time someone tells you about Finland’s wonderful labor market or Australia’s high minimum wage (or any other country, for that matter), ask about the fine print. When you look at these issues more closely, the surface-level claims of minimum wage proponents simply do not hold water.
Still, as the US continues to wrestle with reforms to our education system, we can learn from these countries’ experiences. Finland in particular, with its curricular focus on career preparation instead of rote memorization of obscure knowledge (when was the last time any of you, dear readers, used your knowledge of trigonometry?), provides an important example where lessons for reform can be learned.
We should carefully guard against the headline-grabbing claim that Australia and Finland have high minimum wages. We should especially reject the idea that this somehow proves that raising the minimum wage does not always lead to trade-offs.
