Minimum wage (original) (raw)

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.

Economic consequences of minimum wage laws

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

Conversely, minimum wages may have disadvantages, including:

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.

See also Garcia v. San Antonio Metropolitan Transit Authority.

Worldwide Minimum Wages

History

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

See also

Social wage,

wage slave

Minimum Wage is also the name of a 42-second song by the alternative music duo They Might Be Giants.