[Paleopsych] Wikipedia: Minimum wage
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Wikipedia: Minimum wage
The minimum wage is the minimum rate a worker can legally be paid
(usually per hour). Each country sets its own minimum wage laws and
regulations, and many countries have no minimum wage.
2 Consequences of minimum wage laws
2.1 Hypothetical costs and benefits
2.3 Theoretical arguments
2.4 Wage subsidies
3 Worldwide minimum wages
4 Minimum wage in the United States
5 Minimum wage in the United Kingdom
6 See also
7 External links
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
* United Kingdom in 1909
* United States, the state of Massachusetts in 1912
In the United States and other countries, minimum wage laws were a
common demand of labor unions.
Consequences of minimum wage laws
If the law is successfully enforced, and if they are high enough in
real terms (or relative to the average wage), minimum wage laws
are alleged to have various benefits and costs.
Hypothetical costs and benefits
Minimum wages may have the effect of:
* Reducing low-paid work, which may be viewed as unfair and
* Reducing the dependency of the low-paid on welfare-state
benefits, which may in turn reduce taxes or allow increases of
other government outlays.
* Stimulating economic growth by discouraging labor-intensive
industries, thereby encouraging more investment in capital and
* Encouraging many of those who would normally take low-wage jobs to
stay in (or return to) school and thus to accumulate human
On the other hand, minimum wages may have the effect of:
* Discouraging employment of low-wage earners, and generally
* Raising employment barriers for people with little or no work
experience or formal education: if a worker's labor is not worth
the minimum, he may not find employment at all.
* Curbing economic growth by increasing the cost of labor.
* Increasing the price of goods and services, since employers pass
on employment costs in the form of higher prices. (Opponents of
minimum wage often see a negative income tax, e.g., as a way
to support the lower-waged jobs, with the money coming from those
who pay taxes, not those who pay for the products including the
* Decreasing incentive for some low-skilled workers to gain skills.
* Where implemented locally, making labor more expensive than in
other areas, which may discourage inward investment and
encourage local businesses to relocate their operations elsewhere.
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, some 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, though the consensus
among economics textbooks is that minimum wage laws should be avoided
whenever possible as the costs exceed the benefits. This unified view
has been disputed by empirical research done by David Card and Alan
Krueger. In their 1997 book Myth and Measurement: The New Economics of
the Minimum Wage (ISBN 0-691-04823-1), they found the negative
employment effects of minimum-wage laws to be minimal if not
non-existent (at least for the United States). For example, they look
at the 1992 increase in New Jersey's minimum wage, the 1988 rise in
California's minimum wage, and the 1990-91 increases in the federal
minimum wage. In each case, Card and Kreuger present evidence
ostensibly showing that increases in the minimum wage led to increases
in pay, but no loss in jobs. That is, it appears that the demand for
low-wage workers is inelastic. Also, these authors reexamine the
existing literature on the minimum wage and argue that it, too, lacks
support for the claim that a higher minimum wage cuts the availability
Critics of this research, however, argue that their research was
(http://www.cato.org/pubs/journal/cj15n1-8.html) For example, Card and
Krueger gathered their data by telephoning employers in California and
New Jersey, asking them whether they intended to increase, decrease,
or or make no change in their employment. Subsequent attempts to
verify the claims requested payroll cards from employers to verify
employment, and ostensibly found that the minimum wage increases were
followed by decreases in employment. On the other hand, data analysis
by David Neumark and William Wascher, economists who are usually
critical of minimum-wage increases, supported the Card/Krueger
Some idea of the empirical problems of this debate can be seen by
looking at recent trends in the United States. The minimum wage fell
about 29% in real terms between 1979 and 2003. This should have
helped fight the problem of youth unemployment (since these workers
are likely to have fewer skills than older workers). But young workers
between the ages of 16 and 19 suffered from increased rates of
unemployment (relative to those of workers 20 and older) than before
this fall. Similarly, poverty rates in the United States ended their
long-term decline after 1979. This suggests that critics of the
minimum wage need to present a more complete theory of the origins of
unemployment of young or poor people.
As is usual in serious social science, any empirical conclusion is
subject to doubt and is simply the basis for further questions and
research. One key question is the possible theoretical explanation of
the different results.
The traditional view that minimum wages have significant negative
effects on employment typically assumes that labor markets for
low-skill workers can be characterized as fitting the model of a
perfectly competitive market, where the only role of wages is as a
cost. On the other hand, if Card and Krueger's empirical research is
valid, it may be explained by the efficiency wage hypothesis which
states that higher wages may "pay for themselves" by increasing worker
efficiency (i.e., labor productivity). Higher wages encourage a higher
willingness of low-skill workers to stay with their current employers
and to gain experience and skill, while the employers are more willing
to train them. Alternatively, if monopsony exists, then an
increase in the minimum wage can raise employment. Alan Manning's 2003
book, Monopsony in Motion: Imperfect Competition in Labor Markets
(ISBN 0691113122) suggests that this kind of market is common if
not ubiquitous in labor markets.
Even if Card and Krueger's results are accurate, there may be a
"tipping point" above which their conclusions do not apply and the
standard economic consensus does apply. The possible validity of their
research may be the result of political forces: in the United States,
business political pressure on legislatures and Congress may have kept
the minimum wage so low that it has little negative employment effect.
Further, the Federal minimum wage has moved away from the presumed
tipping point, becoming less relevant. It has fallen from about 50
percent of the average hourly wage in manufacturing during the late
1960s to less than 40 percent.
If they exist, it is clear that some of the adverse effects can only
occur when minimum wages are implemented and successfully enforced by
government fiat: either these effects are a consequence of the costs
of regulation (the consensus) or they do not exist (Card, Krueger, and
others). If, however, a floor on wages is implemented indirectly by
providing wage subsidies, there would not be decreased employment.
However, since this program is not a "free lunch", some other economic
damage may be created instead, as with an externality. 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
While straightforward Pigovian subsidies would have funding
problems, particularly when introducing them for the first time, there
are other approaches. One was examined by Professor Kim Swales of
the University of Strathclyde (See 
(http://www.faxfn.org/03_jobs.htm)). 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").
Alternatively, in the United States, many economists see the "earned
income tax credit" (EITC, a wage subsidy) in the Federal income tax as
providing the poverty-fighting benefits of the minimum wage without
the non-budgetary costs, while being superior to most welfare state
anti-poverty programs. One problem has been that many of the working
poor (the target of this program) have a hard time with the tax forms
needed to receive the EITC payment. There may also be long delays
between when the money is needed and when the EITC payments are
received. That is, a person might become eligible for the EITC in
April but then get laid off for the rest of the year. But this person
would not get help from the credit until nearly a year later (since
Americans pay their taxes in April). Further, like with the minimum
wage, those people working at home taking care of children and other
loved ones do not receive any benefits; only those doing paid labor
Finally, if these kinds of "complications" do not exist, it is
possible that the benefit of the tax credit is received by the
employer: assume that for low-skill workers the equilibrium market
wage equals "X." Before the EITC is introduced, all of this wage is
paid by their employers. After the EITC is instituted, the workers
receive Y + Z, where Y is the new wage paid by employers and Z is the
tax credit. If the labor market returns to the same equilibrium, then
X = Y + Z. This means that the low-skill workers receive exactly the
same amount as before the EITC was introduced and that the employer is
paying less to the employees. This issue needs to examined further.
Worldwide minimum wages
The list below gives the official minimum wage rates. Some countries
are more effective than others at enforcing these laws, so that the
effective minimum wage may be lower than the official one.
* Australia: AUD 467.40 a week (ACTU).
* Austria: none by law; it is instead set by an industrial
* Canada: set by each province; it varies from $5.90 per hour in
Alberta to $8.00 per hour in British Columbia.
* Chile: 120,000 Chilean pesos per month (about $200 US
dollars as of October 2004) for those aged 18-65; 90,327
Chilean pesos (about $150 US dollars) for those younger than 18
and for those older than 65; and 78,050 Chilean pesos (about $130
US dollars) for honorary payments.
* Belgium: 1186.00 euros per month for private sector
employees aged 21 or over (Eurostat 2004).
* Bulgaria: 61.00 euros per month (Eurostat 2004).
* Denmark: none by law; it is instead set by an industrial
* Finland: none by law; it is instead set by an industrial
* France: 7.61 euros per hour. 1154.18 euros per month
(35h/week, 151.67 hours per month).
* Germany: none by law; it is instead set by an industrial
* Greece: 605.00 euros per month (Eurostat 2004).
* Hong Kong: no minimum wage.
* Hungary: 209.00 euros per month (Eurostat 2004).
* Italy: none by law; it is instead set by an industrial
* Republic of Ireland: 7.00 euros per hour.
* Luxemburg: 1403.00 euros per month (Eurostat 2004).
* Netherlands: 1249.20 euros per month plus 8% holiday
allowance, summing to 1349.14 euros (the amount is less for those
22 years old or younger).
* New Zealand: $NZ 9.00 per hour for people 18 years old or
older, and $NZ 7.20 per hour for those aged 16 or 17.
* Portugal: 356.60 euros per month.
* Poland: 180.00 euros per month (Eurostat 2004).
* Russia: 300 rubles per month (slightly over $10 US
* Romania: 69.00 euros per month (Eurostat 2004).
* Spain: 451.20 euros per month.
* Sweden: none by law; it is instead set by an industrial
* Switzerland: none by law; it's normally 3000 CHF (~ 2000
euros) set by collective agreements.
* Turkey: 245.00 euros per month (Eurostat 2004).
* United Kingdom: £3.00 per hour for 16-to-17-year-olds who have
finished compulsary education (except apprentices); £4.10 per hour
for 18-to-21-year-olds; £4.85 per hour for 22-year-olds and above.
* 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 $7.16 an hour in Washington. 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. (29 USC Sec. 206) (OK Statutes 40-197.5) (Revised Code of
Washington Sec. 49.46.020) 
Minimum wage in the United States
During his presidency, Bill Clinton gave states the power to set
minimum wages above the federal. 12 states have already done so, and
the 2004 November ballot could increase that number. Floridians for
All, a coalition consisting of ACORN, unions, and progressive
business leaders, was successful in proposing a Florida minimum wage
of $6.15 an hour, adjusted yearly by inflation. Florida voters passed
this state constitutional amendment in the election of November 2nd,
See List of U.S. state minimum wages.
Minimum wage in the United Kingdom
Municipal regulation of wage levels began in some towns in 1524.
Later, the Trade Boards Act of 1918 made a large number of trades
subject to minimum wages (which varied from trade to trade). These
rules were repealed during the Thatcher era. A national minimum wage
was introduced for the first time by Tony Blair's Labour government.
See National Minimum Wage Act.
* Maximum wage
* Social wage
* Living wage
* Wage slave
* Labor market
* Garcia v. San Antonio Metropolitan Transit Authority
* The Economic Policy Institute
* Floridians for All (http://www.floridiansforall.org)
* AFL-CIO Guide to State Minimum Wages
* UK Department of Trade and Industry
Minimum Wage is also the name of a 42-second song by the
alternative rock duo They Might Be Giants.
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