Minimum wage

The minimum wage is the minimum pay a worker can legally be paid. It is expressed in monetary units per hour (eg. an employee may not be paid less than 6 dollars/yen/pounds, etc. per hour of work). Each country can set its own minimum wage laws and regulations.

Table of contents

1 Economic consequences of minimum wage laws
2 Further economic issues
3 Worldwide Minimum Wages
4 History
5 See also

Economic consequences of minimum wage laws

Minimum wage laws are often argued to bring about certain benefits, including:

Reducing low-paid work, which may be viewed as unfair and exploitative.
Reducing the dependency of the low-paid on state benefits, which may in turn reduce taxes.
Stimulate economic growth by discouraging labor-intensive industry and encouraging more investment in capital and training.

Conversely, minimum wages may have disadvantages, including:

possible increased unemployment for low-wage earners, as higher wage costs provide an incentive to reduce the number of workers employed.
an increase in the cost of basic goods and services - much of the cost is labor.
'knock-on effects', with increased wages for workers already earning above the minimum wage. For example, many Labor Union contracts are based on a fixed percentage or dollar amount above the minimum wage.

Also certain public grants or taxes are based on a multiple of the minimum wage. For example, you may have an exemption if your earnings are below 2.5 minimum wages. The costs and benefits arising from minimum wages are subject to considerable disagreement between economists.

Further economic issues

It is clear that some of the adverse effects can only occur when minimum wages are implemented by government fiat, since either these effects do not exist (one school of thought) or they are a consequence of the costs of regulation (another school of thought). If, however, minimum wages are implemented by providing wage subsidies the burden is transferred elsewhere as an externality, so there would not be increased unemployment but possibly some other economic damage instead. On the other hand, it is possible that there are already externalities contributing to unemployment, and that subsidies at the right level would merely be Pigovian solutions to these and would not actually cause any further harm after all. Research would need to be done to determine this, and without that "argument" would be empty.

While straightforward Pigovian subsidies would have funding problems, particularly transitionally on introducing them, there are other approaches. One was examined by Professor Kim Swales of the University of Strathclyde (See [1]). This avoids funding problems by not having an actual subsidy but a virtual one - the funds flow is always from employers to the government, being netted off by the virtual subsidy before funds ever change hands. This may also be analysed by means of Game Theory (e.g "the Prisoner's dilemma" or "the Tragedy of the Commons").

In the long run this is equivalent to a "Basic Wage", which to be sustainable would have to be set somewhere below the minimum wage needed to live off so that workers would still need to compete for the remaining top up amount. With that, it becomes practical to compete for a low enough top up that effectively all the unemployed could price themselves into work - the living wage is separated from the minimum wage, since the minimum wage is no longer the sole means of subsistence.

Effectively this scenario once obtained when peasants had subsistence land in the form of smallholdings or allotments; like slavery, this offers a distasteful Coasian solution to an unemployment externality. The yield from these was never captured as cash flow and never showed explicitly in GDP. When this failed with the arrival of the Industrial Revolution, attempts were made to revive it with the "allotment movement" in Britain (not to be confused with US attempts to handle Indian Affairs). To the extent that developing countries still offer this, their low-end workers have a concealed non-cash subsidy and can outcompete equivalents in other countries.

Worldwide Minimum Wages

In the United Kingdom, the minimum wage is to �4.20 an hour for 22 year-olds or over, while the rate for workers aged 18 to 21 is �3.60 an hour.
In the Netherlands, the minimum wage per month is 1249.20 euro plus 8% holiday allowance, together 1349.14 euro (less for 22 year-olds and under).
In the USA, the federal minimum wage is $5.15 an hour although workers under age 20 can be paid $4.25 an hour for their first 90 days. Some states also have minimum wage laws ranging from $2.00 in Oklahoma for some jobs not covered by the federal rate and up to $7.15 an hour in Alaska. Some cities and counties have living wage ordinances of up to $15.00 an hour although the groups of workers it applies to are often limited.
In Canada, the minimum wage is set by each province, and varies from $6.00 per hour in Alberta to $8.00 per hour in British Columbia.
In New Zealand, the minimum wage for people over 17 years is $8.50 per hour, and $6.80 per hour for those aged 16 and 17.

History

Minimum wage laws were first introduced in New Zealand. The chronology of moves to legislate minimum wages is as follows:-

New Zealand in 1894
Australian state of Victoria in 1896
Great Britain in 1909
North America, the state of Massachusetts in 1912