Information AboutMinimum Wage |
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A minimum wage is the lowest hourly, daily or monthly wage that employers may legally pay to employees or workers. First enacted in Australia and New Zealand in the late nineteenth century,American Academy of Political and Social Science. "The Cost of Living." Philadelphia, 1913. minimum wage laws are now in force in more than 90% of all countries. ILO 2006: Minimum wages policy (PDF) The magnitude of the costs and benefits of minimum wage laws are not fully understood, and are debated. Many supporters assert that the minimum wage is a matter of Social Justice that helps reduce Exploitation and ensures workers can afford what they consider to be basic necessities ('' Cf. '' In 1896, New Zealand established such arbitration boards with the Industrial Conciliation and Arbitration Act). Also in 1896 in Victoria , Australia , an amendment to the Factories Act provided for the creation of a wages board. The wages board did not set a universal minimum wage, but set basic wages for six industries that were considered to pay low wages.Waltman, Jerold. "The Politics of the Minimum Wage." University of Illinois Press. 2000. First enacted as a four-year experiment, the wages board was renewed in 1900 and made permanent in 1904. By that time it covered 150 different industries. By 1902, other Australian states, such as New South Wales and Western Australia , had also formed wages boards. In 1907, the Harvester Decision was handed down in Australia. It established a 'living wage' for a man, his wife and two children to "live in frugal comfort." In 1907 Ernest Aves was sent by the British Secretary of State for the Home Department to investigate the results of the minimum wage laws in Australia and New Zealand. In part as a result of his report, Winston Churchill , then president of the Board of Trade, introduced the Trade Boards Act on March 24 1909 . It became law in October of that year, and went into effect in January of 1910. In 1912, the state of Massachusetts , United States, set minimum wages for women and children. In the United States , statutory minimum wages were first introduced nationally in 19381 In the 1960s, minimum wage laws were introduced into Latin America as part of the Alliance For Progress ; however these minimum wages were, and are, low 2 p. 342. In the , Sweden , Finland , Denmark , Switzerland , Germany , Austria , Italy , and Cyprus have no minimum wage laws, but rely on employer groups and Trade Union s to set minimum earnings through Collective Bargaining .Ehrenberg, Ronald G. ''Labor Markets and Integrating National Economies'', Brookings Institution Press (1994), p. 41 In addition to the federal minimum wage, nearly all states within the United States have their own minimum wage laws with the exception of South Carolina , Tennessee , Alabama , Mississippi and Louisiana .http://www.dol.gov/esa/minwage/america.htm MINIMUM WAGE LAW See Also: Minimum wage law Minimum wage laws vary greatly across many different jurisdictions, not only in setting a particular amount of money (e.g. US$ 5.85 per hour under U.S. Federal law, or £ 5.35 (for those aged 22+) in the United Kingdom), but also in terms of which pay period (e.g. Russia and China set monthly minimums) or the scope of coverage. For instance, not all workers may be paid a full minimum wage, because exceptions may be made for teenagers or those under 21. Some jurisdictions allow employers to count tips given to their workers as credit towards the minimum wage level. Europe See Also: National Minimum Wage Act 1998 In the , Sweden , Finland , Denmark , Switzerland , Germany , Austria , Italy , and Cyprus have no minimum wage laws, but rely on employer groups and Trade Union s to set minimum earnings through Collective Bargaining .Ehrenberg, Ronald G. ''Labor Markets and Integrating National Economies'', Brookings Institution Press (1994), p. 41 North America See Also: List of minimum wages in Canada Minimum wage in the United States Australia In Australia , on 14 December 2005 , the Australian Fair Pay Commission was established under the Workplace Relations Amendment ( WorkChoices ) Act 2005. It is the responsibility of the commission to adjust the standard federal minimum wage.4 As of 1 December 2006 , the Australian standard federal minimum wage is AUD$ 13.47 per hour or AUD$511.86 per week.5 MINIMUM WAGE ECONOMICS Economic theory analyzes the effects of minimum wages within the context of labor markets (c.f. Labor Economics ). In a labor market, workers supply their labor, which is sold for wages, and employers demand labor. The traditional economic argument views the labor market as perfectly competitive. In perfectly competitive markets, the market price settles to the marginal value of the product. Therefore, under the perfect competition assumption, absent a minimum wage, workers are paid their marginal value. As is the case with all (binding) price floors above the Equilibrium , minimum wage laws are predicted to result in more people being willing to offer their labor for hire, but fewer employers wishing to hire labor. The result is a Surplus of labor, or, in this case, Unemployment . Supply of labor curve The amount of labor that workers supply is generally considered to be positively related to the nominal wage; as wage increases, labor supplied increases. Economists graph this relationship with the wage on the vertical axis and the labor on the horizontal axis. The supply of labor curve then is upward sloping, and is depicted as a line moving up and to the right. The upward sloping labor supply curve is based on the assumption that at low wages workers prefer to consume leisure and forgo wages. As nominal wages increase, choosing leisure over labor becomes more expensive, and so workers supply more labor. Graphically, this is shown by movement along the labor supply curve, that is, the curve itself does not move. Other variables, such as price, may cause the labor supply curve to shift, i.e. an increase in the price level may cause workers to supply less labor at all wages. This is depicted graphically by a shift of the entire curve to the left. Demand for labor curve The amount of labor demanded by firms is generally assumed to be negatively related to the nominal wage; as wages increase, firms demand less labor. As with the supply of labor curve, this relationship is often depicted on a graph with wages represented on the vertical axis, and labor on the horizontal axis. The demand for labor curve is downward sloping, and is depicted as a line moving down and to the right on a graph. The downward sloping demand for labor curve is based on the assumption that firms are profit maximizers. That means they seek the level of production that maximizes the difference between revenue and costs. A firm's revenue is based on the price of its goods, and the number of goods it sells. Its cost, in terms of labor, is based on the wage. Typically, as more workers are added, each additional worker at some point becomes less productive. That's like saying there are too many cooks in the kitchen. Firms therefore only hire an additional worker, who may be less productive than the previous worker, if the wage is no greater than the productivity of that worker times the price. Since productivity decreases with additional workers, firms will only demand more labor at lower wages. Graphically, the effect of a change in is wage is depicted as movement along the demand for labor curve. Other variables, such as price, may cause the labor demand curve to shift, i.e., an increase in the price level may cause firms to increase labor demanded at all wages, because it becomes more profitable to them. This is depicted graphically by a shift in the labor demand curve to the right. Supply and demand for labor Because both the demand for labor curve and the supply of labor curve can be graphed with wages on the vertical axis and labor on the horizontal axis, they can be graphed together. Doing so allows us to examine the possible effects of the minimum wage. The point at which the demand for labor curve and the supply of labor curve intersect is the point of equilibrium. Only at that wage will the demand for labor and the supply of labor at the prevailing wage be equal to each other. If the wages are higher than the equilibrium point, then there will be an excess supply of labor, which is unemployment. A minimum wage prevents firms from hiring workers below a certain wage. If that wage is above the equilibrium wage, then, according to this model, there will be an excess of labor supplied, resulting in increased unemployment. Additionally, firms will hire fewer workers than they otherwise would have, so there is also a reduction in employment. Standard theory criticism Gary Fields, Professor of Labor Economics and Economics at Cornell University , argues that the standard "textbook model" for the minimum wage is "ambiguous", and that the standard theoretical arguments incorrectly measure only a one-sector market. Fields says a two-sector market, where "the self-employed, service workers, and farm workers are typically excluded from minimum-wage coverage… with one sector with minimum-wage coverage and the other without it possible mobility between the two ," is the basis for better analysis. Through this model, Fields shows the typical theoretical argument to be ambiguous and says "the predictions derived from the textbook model definitely do not carry over to the two-sector case. Therefore, since a non-covered sector exists nearly everywhere, the predictions of the textbook model simply cannot be relied on."6 An alternate view of the labor market has low-wage labor markets characterized as ) This view emphasizes the role of minimum wages as a Market Regulation policy akin to Antitrust policies, as opposed to an illusory " Free Lunch " for low-wage workers. Detractors point out that no Collusion between employers to keep wages low has ever been demonstrated, asserting that in most labor markets, Demand Meets Supply , and it is only minimum wage laws and other market interference which cause the imbalance. However collusion is not a pre-requisite for market power; segmented markets, information costs, imperfect mobility and the 'personal' element of labor markets all represent movements away from the idealized perfectly competitive labor market. Debate Support Supporters of the minimum wage claim it has these effects:
Opposition Opponents of the minimum wage claim it has these effects:
Debate over consequences between the level of the minimum wage and unemployment among lower-educated workers.]] A simple classical economic analysis of supply and demand implies that by mandating a price floor above the equilibrium wage, minimum wage laws should cause unemployment. This is because a greater number of workers are willing to work at the higher wage while a smaller numbers of jobs will be available at the higher wage. Companies can be more selective in who they employ thus the least skilled and unexperienced will typically get excluded. However, there are many other variables that can complicate the issue such as Monopsony in the labour market, whereby the individual employer has some market power in determining wages paid. Thus it is at least theoretically possible that the minimum wage may boost employment. Though single employer market power is unlikely to exist in most labour markets in the sense of the traditional ' Company Town ,' asymmetric information, imperfect mobility, and the 'personal' element of the labour transaction give some degree of wage-setting power to most firms. Economists disagree as to the measurable impact of minimum wages in the 'real world'. This disagreement usually takes the form of competing empirical tests of the elasticities of demand and supply in labor markets and the degree to which markets differ from the efficiency that models of perfect competition predict. A 2000 survey by Dan Fuller and Doris Geide-Stevenson reports that of a sample of 308 American Economic Association economists, 45.6% fully agreed with the statement, "a minimum wage increases unemployment among young and unskilled workers", 27.9% agreed with provisos, and 26.5% disagreed. The authors of this study also reweighted data from a 1990 sample to show that at that time 62.4% of academic economists agreed with the statement above, while 19.5% agreed with provisos and 17.5% disagreed.Fuller, Dan und Doris Geide-Stevenson (2003): ''Consensus Among Economists: Revisited'', in: Journal of Economic Review, Vol. 34, No. 4, Seite 369-387 (PDF) A similar survey in 2006 by Robert Whaples polled PhD members of the American Economic Association . Whaples found that 37.7% of respondants supported an increase in the minimum wage while 46.8% wanted it completely eliminated.Robert Whaples (2006) "Do Economists Agree on Anything? Yes!," The Economists' Voice: Vol. 3 : Iss. 9, Article 1. In the debate about minimum wage it is rarely mentioned by ''how much'' the quantity of labor demanded may fall if the minimum wage is raised. Research papers by the Employment Policies Institute8 and by the National Center For Policy Analysis 9 claim that increases of 10% in the minimum wage may reduce demand hours worked at the minimum wage by around 1% or 2% depending on circumstances. Some research suggests that the unemployment effects of small minimum wage increases are dominated by other factors. {Link without Title} In Florida, where voters approved an increase in 2004, a follow-up comprehensive study confirms a strong economy with increased employment above previous years in Florida and better than in the U.S. as a whole. : “The Florida Minimum Wage After One Year.” http://www.risep-fiu.org/reports/Florida_Minimum_Wage_Report.pdf
Today, the International Labour Organization (ILO) and the OECD OECD (2006): ''OECD Employment Outlook 2006'' (read-only PDF) do not consider that the minimum wage can be directly linked to unemployment in countries which have suffered job losses. Minimum wage alternatives The primary purpose of the minimum wage is to give higher income to low wage earners, but the minimum wage is not the only policy that attempts to accomplish this goal. Several policy alternatives such as a Negative Income Tax or Earned Income Tax Credit give benefits to low wage workers in a method that many economists believe is more Economically Efficient . {Link without Title} Under a classical analysis of a minimum wage, some low wage earners are helped by the higher minimum wage, some low wage earners lose their jobs because of the higher minimum wage, and businesses employing low wage earners face higher labor costs. A benefit is delivered to some low wage workers at the expense of other low wage workers and businesses employing low wage workers. On the other hand, a Negative Income Tax or Earned Income Tax Credit benefits a broader population of low wage earners, and society as a whole bears the cost. This is more economically efficient because, a low tax rate on the broader economy causes less Deadweight Loss than a high Tax rate on a small section of the economy. The ability of the Earned Income Tax Credit to deliver a larger monetary benefit to poor workers at a lower cost to society was recently documented in a report by the Congressional Budget Office . {Link without Title} SEE ALSO
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