Should Minimum Wages Be Set Universally?
Introduction
According to the World Economic Forum (WEF) reports in December of 2021, inequality between the rich and the poor has constantly risen. This is where the aspect of minimum wages is introduced, in addition to other policies and interventions to solve this problem. At the same time, the issue of rising inequality holds its elements, such as social factors, which can include discrimination and issues in resource allocation, where the government might not have the resources necessary to intervene efficiently and effectively or face inefficiency while attempting to allocate resources as to moderate accordingly.
What Does Minimum Wage Mean?
Minimum wages are the minimum amount of salary that an employer(s) has to pay to their employee(s) for the work done in a set period (usually annually). This wage is set and cannot be altered unless done by the government.
According to the International Labour Organisation (ILO), minimum wages are present in more than ninety percent of the ILO member states.
Minimum wages are implemented to protect employees from exploitation by being paid low wages by their employers. This way, employees have the chance to receive salaries that more accurately represent the amount of work they get done as well as protect them from absolute poverty and other issues that come along with it (such as discrimination based on income, which can lead to the gap between the rich and poor to increase).
It is essential to acknowledge that minimum wages and other social and employment policies should be collectively used to reinforce systems like the right to collective bargaining.
Advantages and Disadvantages Of Minimum Wages
Like any other policy tool, minimum wage also comes with its own set of advantages and disadvantages. Some advantages include:
Reducing poverty - a minimum wage ensures that it will be adjusted according to inflation, which allows a person to stay out of absolute poverty by being able to afford the necessities.
Increases productivity - Since the minimum wage guarantees the employee that salaries are being adjusted according to inflation to live out of absolute poverty, it encourages employment, which can, in turn, increase productivity.
A few disadvantages include:
Impact on relative poverty - the minimum wage might still not be enough to get out of relative poverty as people still might be below the poverty line. Hence, the people likely to benefit from minimum wages will be second income earners.
Black market - a black market can form to get out of paying the legal minimum amount and hence exploiting labor for greater profits.
Minimum Wages In Different Countries
National minimum wages differ significantly from country to country and vary from state to state. Below, the minimum wages set in two countries are discussed.
In India, for example, the wage is approximately INR 178 per day. This is one of the most competitive rates across the continent of Asia. However, there is no implementation of a national minimum wage in India as it has yet to be set as a government priority due to various labor reforms in the past five years. Examples include the Industrial Relations Code Bill, 2020 Code on Social Security Bill, 2020.
In the US, the federal minimum wage is $7.25 per hour. This rate has remained the same since 2009, although some states have raised their minimum wage, such as Arizona, California, Alaska, etc. According to a recent CNBC article published in 2023, statistics were shared comparing each state's income brackets and minimum wages. In Kansas, for example, 17% of the population represents non-family households whose income comes under the frame of the minimum wage.
Reasons for the uneven increase in minimum wages throughout the US include:
Using an outdated year of the components of calculating wages - for stability- a year with the slightest fluctuation of prices is the basis for calculating the features that make up the Living Wage Calculator. Components of The Living Wage Calculator include housing, food, taxes, etc. Types of expenditures.
To keep money constantly spent and injected into the economy to act as a multiplier eventually, policymakers believe minimum wages should be paid to the lowest extent possible to spend more than save. However, this can have implications such as rapid inflation if not controlled. This can lead to a loss of confidence in the economy if it's volatile.
Conclusion
Having a uniform minimum wage system would be very difficult to maintain simply because each country is in a different stage of development (for example, India is a developing country while the US is a developed country). Another factor is that no common currency exists where the different minimum wages can be converted and adjusted accordingly. This would be more pressure on the government to maintain.
Although countries with relations (such as labor) and of similar developmental progress, population, type of economy, and cost of living, particularly in the components where most expenditure occurs, can experiment with pilot programs to see whether universal minimum wages would be of use, as uniform minimum wages can help in ensuring a set standard of living.
References
https://www.sofi.com/learn/content/raising-minimum-wage/
https://www.ilo.org/global/topics/wages/minimum-wages/definition/lang--en/index.htm
https://www.economicshelp.org/labour-markets/minimum-wage/
https://www.mdpi.com/2673-8392/2/4/130
Written by Arushi Gupta | Proofread by Yasmin Uzykanova
