Minimum wage

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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.

Table of contents

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

Worldwide Minimum Wages

In the United Kingdom, the minimum wage is currently ÃÂÃÂ£4.50 an hour for those 22 years old or older, while the rate for workers aged 18 to 21 is ÃÂÃÂ£3.80 an hour.
In the Netherlands, the minimum wage per month is 1249.20 euros plus 8% holiday allowance, summing to 1349.14 euros. (The amount is less for those 22 years old or younger).
In the 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 $7.15 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. It varies from $6.00 per hour in Alberta to $8.00 per hour in British Columbia.
In New Zealand, the minimum wage is $8.50 per hour for people over 17 years old, and $6.80 per hour for those aged 16 or 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

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

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 industries, thereby encouraging more investment in capital and training.

Conversely, minimum wages are often argued to have some disadvantages, 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. (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 cost of goods and services.

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, many 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.

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.

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").