Business Economics paper

SwimmingTeachers.docx

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QUESTION: Why do swimming teachers in Sydney get paid more than those in Canberra?

Personal experience has allowed me to compare the hourly rate of swimming teachers in Sydney and Canberra. Working for a Government run pool in Sydney I received 32.50 an hour, whereas my current work only pays 19.60 an hour, despite the fact that I am incredibly more experienced now than I was during my Sydney job. The reasons behind this have always interested (and granted, frustrated) me, and I am excited to delve into the possible economic explanations behind this question. Some areas which I seek to examine are externalities, government subsidies, inelastic/elastic demand, supply and demand, and labour markets.

It is important to note that employing labour is seen as a ‘necessary evil’ (Taylor, 2018); a cost firms would rather avoid but require to make a profit. Therefore, firms are going to pay their workers as little as possible in order to maximise profit. Price floors in the form of minimum wages ensure that workers are paid appropriately. In both places Governments have minimum wages in place. The minimum wage implemented is affected by the firms’ revenue, the elasticity of demand, the employee’s willingness to work, the general demand and the extent of the externality.

The obvious reason behind the pay gap is the concept of demand. If there are more people willing to purchase the good, the demand curve shifts out, pushing both the price and quantity up. This simultaneously increases labour demanded by firms and the wages they can pay. Due to the size of Sydney’s population, which is considerably larger than Canberra’s, the demand for swimming lessons is higher. Moreover, the weather and proximity to the ocean both push demand up in Sydney (this will be discussed in depth later on). As the labour market graph represents, wages and labour demanded are both driven up when demand increases, accounting for the lower wage rates in Canberra.

The elasticity of demand gives insight into the possible wage difference Canberra and Sydney swimming instructors are subjected to. Sydney pools have a relatively inelastic demand in comparison to Canberra pools (Khan Academy). This is due to the weather conditions and location. Sydney is situated right on the coast, and as such swimming is viewed as an invaluable skill. This means the market demand is relatively inelastic to price. Conversely, Canberra is two or so hours inland with little places to swim, meaning learning how to swim is not as much of a priority and thus the price is more sensitive to other factors at play. One of these factors is the colder weather conditions of Canberra. Canberra winters are far colder than Sydney Winters, which makes the act of getting wet unpleasant, and due to the elasticity of demand Canberra pools have, willingness to pay decreases. Therefore, prices must be set at a lower price for people to consume the good. If prices are set at a lower price, overall profit for the firm decreases.

Moreover, Sydney swimming lessons are run by the government and therefore heavily subsidised due to their large positive externality. A positive externality is any benefit enjoyed by a third party to the economic transaction (Economics Online). Evidently, both Canberra and Sydney pools result in positive externalities, as children who know how to swim are less likely to drown - a big issue in Australia (Royal Life Saving , 2018). Similarly, Canberra lessons are subsidised but only through the school program which runs at a single firm (The Canberra Times, 2016), creating a kind of monopoly. Because all the government subsidy is concentrated in one area (the AIS), other firms, in order to be competitive, must take the lower price set by the market. This means that wages are generally lower in Canberra than Sydney which distributes its subsidies evenly.

Another possible reason for the wage gap is the demographic and how this affects individuals’ willingness to work. Canberra pools primarily employ university students (at my swimming centre 36 out of the 45 swimming teachers are university students or young people). This kind of statistic is fairly common in Canberra pools. Conversely, Sydney has an older demographic and therefore have a higher percentage of older workers (Australian Bureau of Statistics, 2018). Generally, university students are willing to work for fair less than older individuals, due to reasons including their lack of experience and limited types of jobs they are employable for. This pushes the minimum wage down in Canberra, accounting for the pay gap between Sydney and Canberra.

Thus, numerous factors must be considered when determining the reason behind the wage gap for swimming teachers in Sydney and Canberra. By viewing the situation economically and analysing concepts such as price elasticity, government subsidies, willingness to pay and positive externalities, we gain a better understanding of the mechanisms creating this price gap.

Word Count: 785

References

Hardy, Karen. ‘School Swimming Lessons on the fall in ACT.’ The Canberra Times, 2016. https://www.canberratimes.com.au/national/act/school-swimming-lessons-on-the-fall-in-act-20161207-gt5whf.html

Burgess, Katie. ‘It’s about to get more expensive to go to a public pool in Canberra.’ The Canberra Times, 2018. https://www.canberratimes.com.au/national/act/its-about-to-get-more-expensive-to-go-to-a-public-pool-in-canberra-20180108-h0f26m.html

Khan, Sal. ‘Price elasticity of demand.’ Khan Academy, 2012. https://www.khanacademy.org/economics-finance-domain/microeconomics/elasticity-tutorial/price-elasticity-tutorial/v/price-elasticity-of-demand

‘Positive Externalities.’ Economics Online. http://www.economicsonline.co.uk/Market_failures/Positive_externalities.html

‘Regional Population by Age and Sex, Australia, 2017.’ Australian Bureau of Statistics, 2018. http://www.abs.gov.au/ausstats/[email protected]/mf/3235.0