Minimum wage: Meaning (information, definition, explanation, facts)

The minimum wage is the minimum rate a worker can legally be paid. Each country sets its own minimum wage laws and regulations, and some countries have no minimum wage.

Worldwide minimum wages

• Canada: set by each province; it varies from $5.90 per hour in Alberta to $8.00 per hour in British Columbia.
• Chile: 120,000 Chilean pesos per month (about $190 US dollars as of August 2004) for those aged 18-65; 90,327 Chilean pesos (about $145 US dollars) for those younger than 18 and for those older than 65; and 78,050 Chilean pesos (about $125 US dollars) for honorary payments.
• Denmark: 11.80 euros per hour for adults and 6.80 euros per hour for minors under 18.
• France: 7.61 euros per hour. 1154.18 euros per month (35h/week, 151.67 hours per month).
• Netherlands: 1249.20 euros per month plus 8% holiday allowance, summing to 1349.14 euros (the amount is less for those 22 years old or younger).
• New Zealand: $9.00 per hour for people 18 years old or older, and $7.20 per hour for those aged 16 or 17.
• Portugal: 356.60 euros per month.
• Russia: 300 rubles per month (slightly over $10 US dollars).
• Spain: 451.20 euros per month.
• Sweden: none by law; it is instead set by an industrial collective agreement.
• United Kingdom: currently £4.50 an hour for those 22 years old or older, while the rate for workers aged 18 to 21 is £3.80 an hour.
• United States: the federal minimum wage is $5.15 per 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), to $7.16 an hour in Washington. 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.

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
• United Kingdom in 1909
• North America, the state of Massachusetts in 1912

In the United States and other countries, minimum wage laws were a common demand of labor unions.

If the law is successfully enforced, 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 welfare-state benefits, which may in turn reduce taxes or allow increases of other government outlays.
• Stimulate economic growth by discouraging labor-intensive industries, thereby encouraging more investment in capital and training.
• Encouraging many of those who would normally take low-wage jobs to stay in (or return to) school and thus to accumulate human capital.

Conversely, minimum wages are seen to have some costs, including:

• Increasing unemployment for low-wage earners: it is argued that a higher wage cost per individual reduces the number of workers that may be employed.
• Raising employment barriers for people with little or no work experience or formal education: if a worker's labor is not worth the minimum, he may not find employment at all.
• Curbing economic growth due to higher labor costs.
• Increasing the price of goods and services, since employers pass on employment costs in the form of higher prices.
• Decreasing incentive for some low-skilled workers to gain more skills.
• Where implemented locally, making labor more expensive than in other areas, which may discourage inward investment and encourage local businesses to relocate their operations elsewhere.

The effects of minimum wage laws, both positive and negative, may be increased by 'knock-on effects', with increased wages for workers already earning above the minimum wage. For example, some labor union contracts are based on a fixed percentage or dollar amount above the minimum wage. Certain public grants or taxes are based on a multiple of the minimum wage. (For example, a worker may have an exemption if his earnings are below 2.5 minimum wages.)

The costs and benefits arising from minimum wages are subject to considerable disagreement among economists, though the consensus among economics textbooks is that minimum wage laws should be avoided whenever possible as the costs exceed the benefits. This consensus has been disputed by empirical research (which is itself disputed) done by David Card and Alan Krueger. In their 1997 book Myth and Measurement: The New Economics of the Minimum Wage (ISBN 0691048231), Card and Krueger claimed to have found the negative employment effects of minimum-wage laws to be minimal if not non-existent (at least for the United States). For example, they look at the 1992 increase in New Jersey's minimum wage, the 1988 rise in California's minimum wage, and the 1990-91 increases in the federal minimum wage. In each case Card and Kreuger present evidence ostensibly showing that increases in the minimum wage lead to increases in pay, but no loss in jobs. That is, it appears that the demand for low-wage workers is inelastic. Also, these authors reexamine the existing literature on the minimum wage and argue that it, too, lacks support for the claim that a higher minimum wage cuts the availability of jobs.

Critics of the Card-Krueger experiment, however, argue that their research was flawed. Card and Krueger gathered their data by telephoning employers in California and New Jersey, asking them whether they intended to increase, decrease, or or make no change in their employment. Subsequent attempts to verify the claims requested payroll cards from employers to verify employment, and ostensibly found that the minimum wage increases were followed by decreases in employment.

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.

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").

During his presidency, Bill Clinton gave states the power to set minimum wages above the federal. 12 states have already done so, and the 2004 November ballot could increase that number. Floridians for All, a coalition consisting of ACORN, unions, and progressive business leaders, was successful in proposing a Florida minimum wage of $6.15 an hour, adjusted yearly by inflation. This issue will be proposed on the presidential ballot.

See List of State Minimum Wages.