A minimum wage is the lowest hourly, daily or monthly wage A wage is a compensation, usually financial, received by workers in exchange for their labor that employers may legally pay to employees or workers. Equivalently, it is the lowest wage at which workers may sell their labor. Although minimum wage laws Law is a system of rules, usually enforced through a set of institutions. Laws can shape or reflect politics, economics and society in numerous ways and serves as a primary social mediator of relations between people are in effect in a great many jurisdictions, there are differences of opinion about the benefits and drawbacks of a minimum wage. Supporters of the minimum wage say that it increases the standard of living of workers and reduces poverty.[1] Opponents say that if it is high enough to be effective, it increases unemployment, particularly among workers with very low productivity due to inexperience or handicap, thereby harming lesser skilled workers to the benefit of better skilled workers.[2]
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Background
A sweatshop in Chicago Chicago ( /ʃɨˈkɑːɡoʊ/ or /ʃɨˈkɔːɡoʊ/) is the largest city in both Illinois and the Midwest, and the third most populous city in the United States, with over 2.8 million residents. Its metropolitan area, commonly named "Chicagoland", is the 26th most populous in the world, home to an estimated 9.7 million people spread, Illinois in 1903Minimum wages were first proposed as a way to control the proliferation of sweat shops Sweatshop is a working environment considered to be unacceptably difficult or dangerous — particularly by industrialized nations with high standards of living. However sweatshops may exist in any country. Sweatshop workers often work long hours for unusually low pay, regardless of laws mandating overtime pay or a minimum wage. Child labour laws in manufacturing Manufacturing is the use of machines, tools and labor to make things for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale. Such finished goods may be used for manufacturing industries. The sweat shops employed large numbers of women and young workers, paying them what were considered to be substandard wages. The sweatshop owners were thought to have unfair bargaining power over their workers, and a minimum wage was proposed as a means to make them pay "fairly." Over time, the focus changed to helping people, especially families, become more self sufficient. Today, minimum wage laws cover workers in most low-paid fields of employment.[3]
The minimum wage has a strong social appeal, rooted in concern about the ability of markets to provide income equity for the least able members of the work force. An obvious solution to this concern is to redefine the wage structure politically to achieve a socially preferable distribution of income. Thus, minimum wage laws have usually been judged against the criterion of reducing poverty.[4]
Although the goals of the minimum wage are widely accepted as proper, there is great disagreement as to whether the minimum wage is effective in attaining its goals. From the time of their introduction, minimum wage laws have been highly controversial politically, and have received much less support from economists than from the general public. Despite decades of experience and economic research, debates about the costs and benefits of minimum wages continue today.[3]
The classic exposition of the minimum wage's shortcomings in reducing poverty was provided by George Stigler George Joseph Stigler was a U.S. economist. He won the Nobel Memorial Prize in Economic Sciences in 1982, and was a key leader of the Chicago School of Economics, along with his close friend Milton Friedman in 1946:
- Employment may fall more than in proportion to the wage increase, thereby reducing overall earnings;
- As uncovered sectors of the economy absorb workers released from the covered sectors, the decrease in wages in the uncovered sectors may exceed the increase in wages in the covered ones;
- The impact of the minimum wage on family income distribution may be negative unless the fewer but better jobs are allocated to members of needy families rather than to, for example, teenagers from families not in poverty;
- The legal restriction that employers cannot pay less than a legislated wage is equivalent to the legal restriction that workers cannot work at all in the protected sector unless they can find employers willing to hire them at that wage.[4]
Direct empirical studies indicate that anti-poverty effects in the U.S. would be quite modest, even if there were no unemployment effects. Very few low-wage workers come from families in poverty. Those primarily affected by minimum wage laws are teenagers and low-skilled adult females who work part time, and any wage rate effects on their income is strictly proportional to the hours of work they are offered. So, if market outcomes for low-skilled families are to be supplemented in a socially satisfactory way, factors other than wage rates must also be considered. Employment opportunities and the factors that limit labor market participation must be considered as well.[4] Economist Thomas Sowell Thomas Sowell , is an American economist, social critic, political commentator and author. He often writes as an advocate of laissez-faire economics. He is currently a senior fellow of the Hoover Institution at Stanford University. In 1990, he won the Francis Boyer Award, presented by the American Enterprise Institute. In 2002 he was awarded the has also argued that regardless of custom or law, the real minimum wage is always zero, and zero is what some people would receive if they fail to find jobs when they try to enter the workforce, or they lose the jobs they already have.[5]
Minimum wage law
Main article: Minimum wage law Minimum wage law is the body of law which prohibits employers from hiring employees or workers for less than a given hourly, daily or monthly minimum wage. More than 90% of all countries have some kind of minimum wage legislationFirst enacted in New Zealand New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses , and numerous smaller islands, most notably Stewart Island/Rakiura and the Chatham Islands. The indigenous Māori language name for New Zealand is Aotearoa, commonly translated as The Land of the Long White Cloud. The Realm of New Zealand also in 1894 1894 was a common year that started on Monday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Saturday of the 12-day slower Julian calendar),[6][7] there is now legislation or binding collective bargaining regarding minimum wage in more than 90% of all countries.[8]
Minimum wage rates vary greatly across many different jurisdictions, not only in setting a particular amount of money (e.g. US$ The United States dollar is the official currency of the United States. The U.S. dollar is normally abbreviated as the dollar sign, $, or as USD or US$ to distinguish it from other dollar-denominated currencies and from others that use the $ symbol. It is divided into 100 cents7.25 per hour under U.S. Federal law, $8.55 in the U.S. state of Washington Washington (pronounced /ˈwɒʃɪŋtən/ ) is a state in the Pacific Northwest region of the United States. Washington was carved out of the western part of Washington Territory which had been ceded by Britain in 1846 by the Oregon Treaty as settlement of the Oregon Boundary Dispute. It was admitted to the Union as the forty-second state in 1889,[9] and £ The pound sterling , commonly simply called the pound, is the currency of the United Kingdom, its Crown dependencies (the Isle of Man and the Channel Islands) and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence (singular: penny)5.80 (for those aged 22+) in the United Kingdom[10]), but also in terms of which pay period (e.g. Russia and China b. ^ Simple characterizations of the political structure since the 1980s are no longer possible set monthly minimums) or the scope of coverage. Some jurisdictions allow employers to count tips given to their workers as credit towards the minimum wage level. (See also: List of minimum wages by country The list below gives the official minimum wage rates in 197 countries and territories: 192 United Nations member states, plus the Republic of China , Northern Cyprus, Hong Kong, Kosovo and Western Sahara. Some countries are more effective than others at enforcing these regulations, so that the effective minimum wage may be lower than the official)
Informal minimum wages
Sometimes a minimum wage exists without a law. Custom and extra-legal pressures from governments or labor unions can produce a de facto minimum wage. So can international public opinion, by pressuring multinational companies to pay Third World workers wages usually found in more industrialized countries. The latter situation in Southeast Asia and Latin America has been publicized in recent years, but it existed with companies in West Africa in the middle of the twentieth century.[5]
Economics of the minimum wage
Simple supply and demand
Main article: Supply and demand Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, price will function to equalize the quantity demanded by consumers, and the quantity supplied by producers, resulting in an economic equilibrium of price and quantityAn analysis of supply and demand of the type shown in introductory mainstream economics Mainstream economics is a loose term used to refer to the non-heterodox economics taught in prominent universities. It is most closely associated with neoclassical economics, or more precisely by the neoclassical synthesis, which combines neoclassical approach to microeconomics with Keynesian approach to macroeconomics textbooks implies that by mandating a price floor above the equilibrium wage, minimum wage laws should cause unemployment.[11][12] 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 those whom they employ thus the least skilled and least experienced will typically be excluded.
According to the model shown in nearly all introductory textbooks on economics, increasing the minimum wage decreases the employment of minimum-wage workers.[13] One such textbook says:
"If a higher minimum wage increases the wage rates of unskilled workers above the level that would be established by market forces, the quantity of unskilled workers employed will fall. The minimum wage will price the services of the least productive (and therefore lowest-wage) workers out of the market. ... The direct results of minimum wage legislation are clearly mixed. Some workers, most likely those whose previous wages were closest to the minimum, will enjoy higher wages. Others, particularly those with the lowest prelegislation wage rates, will be unable to find work. They will be pushed into the ranks of the unemployed or out of the labor force."[14]
It illustrates the point with a supply and demand diagram similar to the one below.
It is assumed that workers are willing to labor for more hours if paid a higher wage. Economists graph this relationship with the wage on the vertical axis and the quantity (hours) of labor supplied on the horizontal axis. Since higher wages increase the quantity supplied, the supply of labor curve is upward sloping, and is shown as a line moving up and to the right.[15]
A firm's cost is a function of the wage rate. It is assumed that the higher the wage, the fewer hours an employer will demand of an employee. This is because, as the wage rate rises, it becomes more expensive for firms to hire workers and so firms hire fewer workers (or hire them for fewer hours). The demand of labor curve is therefore shown as a line moving down and to the right.[15]
Combining the demand and supply curves for labor allows us to examine the effect of the minimum wage. We will start by assuming that the supply and demand curves for labor will not change as a result of raising the minimum wage. This assumption has been questioned. If no minimum wage is in place, workers and employers will continue to adjust the quantity of labor supplied according to price until the quantity of labor demanded is equal to the quantity of labor supplied, reaching equilibrium price In economics, economic equilibrium is simply a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal. Market equilibrium, for example, refers to a condition where a market price is, where the supply and demand curves intersect. Minimum wage behaves as a classical price floor A price floor is a government- or group-imposed limit on how low a price can be charged for a product. For a price floor to be effective, it must be greater than the equilibrium price on labor. Standard theory says that, if set above the equilibrium price, more labor will be willing to be provided by workers than will be demanded by employers, creating a surplus The term surplus is used in economics for several related quantities. The consumer surplus is the amount that consumers benefit by being able to purchase a product for a price that is less than the most that they would be willing to pay. The producer surplus is the amount that producers benefit by selling at a market price mechanism that is higher of labor i.e. unemployment.[15]
In other words, the simplest and most basic economics says this about commodities like labor (and wheat, for example): Artificially raising the price of the commodity tends to cause the supply of it to increase and the demand for it to lessen. The result is a surplus of the commodity. When there is a wheat surplus, the government buys it. Since the government doesn't hire surplus labor, the labor surplus takes the form of unemployment, which tends to be higher with minimum wage laws than without them.[5]
So the basic theory says that raising the minimum wage helps workers whose wages are raised, and hurts people who are not hired (or lose their jobs) because companies cut back on employment. But proponents of the minimum wage hold that the situation is much more complicated than the basic theory can account for.
One complicating factor is possible monopsony In economics, a monopsony (from Ancient Greek μόνος "single" + ὀψωνία (opsōnia) "purchase") is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers. As the only purchaser of a good or service, the " in the labor 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 labor markets in the sense of the traditional 'company town A company town is a town or city in which much or all real estate, buildings , utilities, hospitals, small businesses such as grocery stores and gas stations, and other necessities or luxuries of life within its borders are owned by a single company. The term is used in the US and UK to refer to a town or city where loyalty to the company that is,' asymmetric information, imperfect mobility, and the 'personal' element of the labor transaction give some degree of wage-setting power to most firms.[16]
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Bowling Green Daily News Wage the Fight will be from 5 pm to 8 pm Sept. 2 at the hotel, featuring the classic rock sounds of local band Minimum Wage ...
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Photo by Scott Rothschild Advocates for workers handed out bags of peanuts with the state minimum wage of $2 65 per hour printed on the bag
