Perhaps, the issue of minimum wage legislation is among the most controversial issues surrounding the labor market. In many a country, minimum wage is determined through collective bargaining rather than through the determination of the law. Instead of using statutory regulation in the determination of minimum wage, governments intervene by following an arbitration procedure. Minimum wage often covers employees engaged under private contract and employees in public enterprises. Categories of workers covered under the minimum wage include full-time workers, part-time workers, piece workers, casual workers, freelance workers, and agency workers. Minimum wage regulations gives exceptions to workers such as the self-employed, individuals serving prison sentences (Zatz, 2009), volunteer workers, armed forces personnel, and nannies. In all situations, the minimum wage constitutes the legally binding minimum rates of pay that all employers must observe irrespective of the size of the firm (König, and Möller, 2009). From one perspective, minimum wage legislations provides a major advantage to covered workers because it stipulates the minimum amount of pay they are entitled to receive. On a wider macroeconomic perspective, minimum wage is associated with a plethora of other positive and negative effects to the economy.
National Minimum Wages
Countries across the world have reacted differently in the implementation of minimum wage policies and in determining the rate of effectiveness of the minimum wage policies. Other than the varying jurisdictions, the payment periods and particular amounts of money payable differs across countries. In the UK and US, minimum wage is calculated on an hourly basis while in countries such as China and Russia, minimum wage is determined based on monthly limits (Stephen, 1995). In countries such as the UK, age brackets are important in determining the minimum wage limits for workers. Labor unions are influential in putting pressures to employers by establishing a de facto minimum wage using their custom and extra-legal pressures. In third world countries, international public opinion piles pressure on multinational companies to increase the amounts payable to workers.
In nearly 90% of the world’s economies, minimum wage is one of the most widely used instruments for affecting the distribution of wages in the labor market because the law provides it. Variations in implementation of the minimum wage occur due to implementation approaches and the nature of effectiveness of the minimum wage. By virtue of its redistributive nature and policy matters, the implementation of minimum wage is a subject that generates contentious political issues and equally generates controversies among institutions such governments, employers, and worker organizations. Despite these controversies, many still believe that the aspect of defining the minimum wage is one of the major advantages that a nation obtains by implementing the minimum wage rate.
Sources of Employment Laws on Minimum Wage
Acts of Parliament
In efforts aimed at maintaining equal living standards and general worker welfare, Acts of parliament such as the Fair Labor Standards Act (FLSA) in the United States and the were enacted to provide a ceiling over the amount workers were entitled (Hansen, 1996). This Act requires employers to comply with municipal, state, or federal laws and other regulatory agreements such as collective bargaining agreements and regulations in providing improved benefits other than those stipulated. Minimum wage laws defined under Acts of parliament will a not time be reduced or waived and such laws are applicable to employment relationship provided there exists and employee and employer. However, minimum wages enacted under Acts of parliament does not cover exempted workers such as self-employed, individuals serving prison sentences, volunteer workers, armed forces personnel, and nannies.
Qualifications for the Minimum Wage
It is required that employers pay their employees enough compensations that fulfils the minimum required levels. Weekly compensation rates are divided by the total weekly working hours in order to ascertain whether employers have satisfied the minimum wage requirements. No deductions can be made in order to benefit the employer while minimizing an employee’s pay to the minimum threshold. It is common for employers to deduct certain percentages from employees to cover for tools of trade, customer errors, and issue of uniforms. In situations where these things are needed, employers are not supposed to take certain kickbacks from workers because it will reduce their minimum wage thresholds.
This body represents a voice for the workers and often takes every opportunity to champion for their rights. Worker unions provides a great source power for fighting for the increased minimum wage depending on the prevailing conditions.
An emerging source of minimum wage implementation whereby trade unions enter into negotiations with firms and businesses on behalf of the workers. The items discussed include the hourly rate of minimum wage that should be paid to workers. It is often preferred to the reliance on legislative action when passing minimum laws.
Impact of minimum wages
The regulations of minimum wages require that employers do not go below a certain threshold when it comes to payment of wages. Minimum wages provide guarantee to any low skilled worker that their earnings will be able to be sufficient to cater for their basic needs (König, and Möller, 2009). The regulations of minimum wages also aim at protecting vulnerable employees from any form exploitation related to payment. In countries such as the US, the idea of minimum wages has been viewed to play a critical role in poverty alleviation . This means that minimum wages does not only help the disadvantaged and vulnerable workers but also contributes towards the development of an economy. Employers are also another group of beneficiaries to the regulations of minimum wages. They get to benefit in several ways . For instance, minimum wages has helped raise the productivity level of employees by increasing their morale in the workplace. At the same time minimum wages has helped reduce turnover rate for employees through having a standard payment rate. The idea of standardizing the wages of employees is further seen to help in creating cohesion and social peace among employees .
The idea of minimum wages was stimulated in many developed countries such as the US and UK because of the creation of national minimum wages. This developed provoked numerous studies on the effect of minimum wages to the national economy . The recent studies conducted in the US relied mainly on the microeconomics data sources unlike the earlier studies, which failed to associate any negative relationship between minimum wages and employment. This implies that despite the positive impacts associated with the idea of minimum wages earlier, recent studies have established some negative aspects of minimum wages.
Minimum wage and wage dispersion
According to most models of minimum wages, if an increase in minimum wages occurs, the earning distribution tends to be compresses. Several developed countries have managed to increase their minimum wages over the period since they introduced the idea. Increasing the minimum wage has the potential of affecting inflation negatively. Many analysts have argued that an increase in minimum wages can result in high prices of commodities. Workers would have more money and high potential of purchasing basic commodities. This therefore increases the inflation rate of an economy. At the same time, minimum wages has the potential of creating reducing employment opportunities among the low skilled workers. These workers would mainly loose employment opportunities because employers would go for the high skilled workers if the minimum wage were increased.
In 1999, minimum wage in some of the US states stood at $5.25 per hour. This figure has however been increased over time. For instance, by 2000, the figure was raised to $6. Currently the figure has been raised to more than $8. In some states such Massachusetts, the idea of raising minimum wages has been based on notion that it would benefit many employees who are low skilled. For instance, by 2007, there were more than 270000 low skilled employees in this state; raising the minimum wage was seen as a means to increase the living standards of this particular segment of the population.
Argument for minimum wage
Notably, minimum wage enables individuals with the worst paid jobs, better living standards. This consequently reduces poverty since most people earn a reasonable living. In such a country where minimum wage is effective, the social benefits are much greater than where it does not exist. The country also benefits from better returns of tax (Sanjiv, 2003). Since the total income of workers increase, national income tax therefore increases. This is because it is mandatory for citizens who earn minimum wage to pay taxes compared to where most citizens do not earn minimum wage and therefore do not have to pay.
In countries where minimum wage is effective, citizens have greater incentive to work. This is because citizens will prefer to work at minimum wage rather than claim welfare support because it is more beneficial (Sanjiv, 2003). This translates to a more productive nation and therefore efficient personnel at the work areas. Consequently, cases of lateness and absenteeism would be reduced in overall.
The debate of minimum wage being evil compared to what unemployed people can do to a community is ever ongoing. Firms my deem it as a rip off by the government but since it reduces idlers and desperate citizens to support their families, crime and maliciousness is greatly reduced. This is due to the fact most people engage in crime as an act of desperation to have a better lifestyle or even yet to barely provide basic needs to their families. If such a group is given employment, they have no reason to go back to crime resulting to better neighborhoods and communities.
Another validation of minimum wage is equity justification. This is the issue pertaining fair rate of pay thus protecting against mistreatment as well as exploitation. Activist of minimum wage argue that the current earnings of citizens in most countries is too low.
Increase in productivity in the employees firms is another validation. Reason to this is since employers want to get their money’s worth; they end up training their employees so they can be more efficient and more productive. In cases where the productivity of workers reflects on their paycheck, it motivates the employers to work more to earn more.
It also aids workers with families. This is because if the minimum wage policy were not in place, employees would hire those that would work for the least. On one hand, it would greatly benefit immigrants who really need the pay but on the other, it would affect the older workers who also need it even more to support their families therefore creating a bit of conflict of ideas. This would greatly affect and penalize those workers that need it even more.
Minimum wage would also protect female or young employees. Notably, the most discriminated and the most exploited part of the working groups are the latter. This is because that in most scenarios, the have little or no protection from the trade unions (Vasiliki, 1994). This places them as the most vulnerable group but the minimum pay provides equity to all groups therefore providing a happier working nation.
Reduction of government spending is more validation of this humane policy. If employees make more in employment than they do with the government welfare handouts, more citizens will yearn to make a living than get less from welfare. There is therefore no need for the government to provide the welfare benefits thus directing those very funds to more pressing projects that would improve the lives of the citizens of the very nation (Vasiliki, 1994).
Finally is the Keynesian argument that suggest the more the citizens have at their disposal the more they are likely to spend. This consequently can boost demand for goods and services. If more amounts are spend, it translates to more resources being injected back to the circular flow of income. It is therefore more advisable to put in place minimum wage policies to areas where average incomes are low and the economy is doing poor.
Arguments against minimum pay
It is believed that minimum wage is against the free market. This is because if the minimum pay is put above the market price, it may come at a cost of employment. The reasoning behind this is since most employers would rather have few employees with considerably low productivity than have overpriced workers with the state of the economy. Such an action would lead to persons who would have otherwise been employed finding themselves unemployed. In such cases, it is rather to have little pay than no pay at all. The workers union would have also played the role of minimum wage by ensuring that the workers are not too exploited.
Shadow labor markets may crop up because of minimum wage policies. This is a situation whereby employers employ those that are willing to work at a lower pay illegally thus resulting to others that deserve the employment more being unemployed. Such companies reduce the amount of tax paid to the government since illegal employees will not pay tax. On the other hand, the government will have to pay welfare benefits to the unemployed. Such policies benefit the already employed but affect those that would miss employment due to the shadow labor market.
Total costs of products may also increase. This is because higher wages increases the cost of production therefore resulting to lower profits for the investors. The lack of profitability will push foreign and local investors away making the country suffer more whereas if the wages were lower. This policy may also have a lower effect of reducing poverty. Such instances are witnessed in the poorer communities that receive the job hunting allowance and incapacity benefits.
The final point is the risk of inflation. Minimum wage will increase the average cost of labor and as a factor of production resulting to inflation. This cost will be passed from the firms then to the consumers through higher prices of products. This will strain the citizens of the nation thus benefiting them even less.
Even though many a people believe that the greatest contribution a country derives by setting a minimum wage is the surety of a minimum wage rate to every worker, the implementation of minimum wage has minimum wage is associated with a plethora of other positive and negative effects to the economy. The proponents of minimum wage argue that minimum wage enhances encourages equality in income distribution, reduces illegal businesses by encouraging workers to join the workforce, worker commitment, reduces the exploitation of workers, and minimizes the government’s expenditure on welfare. Opponents of minimum wage claim that minimum wage encourages political-economic protectionism, increases marginal costs, benefits certain workers over the lazy workers, reduces a firm’s profits, and encourages cost-push inflation. Such differing opinions makes it difficult to determine the equilibrium benefits that a country obtains by implementing minimum wage laws.
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