Wednesday, May 28, 2014

Here is some great info on the high Australian Minimum Wage. This is not to change minds but to add to your knowledge base. Both sides will find some supporting evidence.

When we compare minimum wages across borders it can get dicey because we have to interject currency exchange rates. We can use actual market exchanges rates or we can use the Purchasing Power Parity (PPP) exchange rate.  Depending on the currency you are comparing those two rates can be vastly different.

This is the case with the US dollar relative the Australian dollar.

The actual exchange rate (05/28/2014) is $1.00US = $1.0849A or $1.00A = $.92168US (these numbers are reciprocals of each other).

The current Australian minimum wage is $16.37 Australian Dollars (with some important caveats. See below).  If we convert that to dollars it would be $15.08 US dollars ($16.37A times $.92168US).  NICE!

However, if we use PPP the exchange rate (for 2013 the latest I could find at OECD) would be $1.00US= $1.4728A or $1.00A = $.6789US.

Now, the Australian minimum wage of $16.37A would be $11.12 US.  Still better than our $7.25 in the US, BUT not as high as $15.08 using current market exchange rates.

PPP theory suggests that the Australian dollar is OVERVALUED in the market place by as much as 35%. Looking at current data from  the OECD, it is more like 42% or so.

I do all this beforehand so I can introduce this chart I found. It is from MyWage Australia.

I modified it a bit to add some info (in black boxes).

In Australia there are some significant exceptions/exemptions from the minimum wage that are RARELY, if at all, discussed along with the issue.  I was not aware of them either!

For the different age groups I calculated what the minimum wage was in current market exchange rates and in Purchasing Power Parity.

According to PPP, if you are under 16, 16 or 17 the minimum wage in Australia is significantly lower than in the US.  Only after reaching 18 does it improve above the US minimum.

I did not calculate the rates for Apprenticeships, but if you take the number you see there and multiply by $.6789 US you will get the PPP in US dollars.

MyWage site from Australia
I hope this gives you more perspective and depth to your knowledge base on this issue.

The next time someone throws out the high US dollar figure when discussing the Australian min wage, you can legitimately ask:  "Is that in market exchange rates or at PPP?".  Watch the look you get... :)
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