If you’re a minimum wage worker in an industry like hospitality or retail, you could be earning
between $5 and $2,433 per month, depending on where you live.
A minimum wage system is very complex.
It depends from country to country, sector to sector, political landscape, you name it.
But at the same time, a lot of people argue that increasing minimum wage could actually
lift millions of people out of poverty.
But some people argue that an increase in the minimum wage might lead to a loss of jobs.
That’s debatable.
The minimum wage is the lowest amount of compensation an employer can legally pay its workers.
That said, an estimated 266 million wage earners globally, 15% of the working population,
are paid below minimum wage.
This is either because they are not legally covered or because of non-compliance.
And of the 187 member states in the International Labour Organization, 10% don’t have a minimum wage.
So, why is that?
The effectiveness of a minimum wage has been debated since the concept was first introduced
and has come even more into the forefront as income inequality within nations rises.
To help me illustrate some points, I’ve enlisted the help of London correspondent
Silvia Amaro, who covers European politics and markets.
Silvia, I have a question for you.
When you think about a minimum wage, what comes to mind?
An ideal.
An ideal to avoid a race to the bottom when it comes to wages.
And I use the word ideal, Nessa, because essentially there are too many elements that can decide
the standards of living of people.
What first came to my mind is one single magic number that applies to all employees in a
country that increases their standard of living, but it’s not really a silver bullet, is it?
No, it’s not.
Essentially, there’s not a universal number.
But in essence when you look at a minimum wage, it needs to be enough to then cover
income taxes, social contributions and other levies.
And when you look at these contributions, they also change from country to country.
Some countries may have as much as 50, or more, different minimum wage rates.
And these rates are determined by factors like sector, occupation, age, or geographical region.
That also adds another layer of complexity when you try to compare the different systems
across the world.
For example, as many as 14 countries in Africa have two rates: One for the agricultural sector
and the other for everything else.
In Europe, workers in the textile and leather industry have a lower rate.
And for big countries such as the U.S. and China, this disparity may apply across regions too,
because of the different costs of living, economic development and the labor market situation.
In Shanghai, which is China’s financial hub, its minimum wage is the highest in the country.
What is the purpose of minimum wage?
In very broad terms, the idea is to ensure fairness.
We’re talking about an idea that is meant to protect workers, but ultimately, it’s
about ensuring equality in our societies.
But how are minimum wages determined?
If it’s too high, it gets hard to enforce.
If it’s too low, that protection net is gone.
There’s not a concrete formula how much a person should have, should earn, in order
to live in a decent way.
This is a policy that is often debated around elections.
But at the same time, of course, in more practical terms, the minimum wage can also change because
of inflation.
Since 2010, countries with minimum wages have adjusted them every 3 years on average.
So, it takes a while to adjust to higher consumer prices.
Essentially, you needed a benchmark, to compare the systems across the world.
The one that we’re using in this case, is the purchasing power parity exchange rates.
All of these rates are converted into U.S. dollars, and then compared.
Globally, the median minimum wage level for 2019 is $486 per month.
Luxembourg has one of the highest at $2,433 per month, while Australia and Canada are
also near the top of the list.
At the bottom, we have countries like Mexico, Bangladesh and Uganda.
It’s important to also note that minimum wage is not an isolated concept, right?
It works in tandem with other social and other employment policies.
Yeah, absolutely.
And when you look at the labor market, one of the issues that we see is the gender pay gap.
So in other words, the idea that men tend to earn more than women, even if they are
doing the same role.
The idea with a minimum wage can also help in narrowing that gap between men and women.
There are some groups of workers in particular industries or occupations, for example agriculture
or even domestic work, they are excluded from a minimum wage.
According to the ILO, 22.4 million domestic workers worldwide are not covered by any minimum
wage provisions.
And it’s not just limited to specific industries.
In Oman, only nationals are covered by a minimum wage law.
Foreign workers are notably excluded.
This brings us to the other side of the debate.
There are a number of countries without statutory minimum wage systems.
So, for instance, the Nordic European countries, they have a collective bargaining system.
So, in other words, it's up to usually the trade unions or the workers to negotiate with
the employers, what are the minimum wages for certain types of jobs.
So, it's not a government mandate, and it's not universal across the countries.
Other countries have also bucked the trend, including the United Arab Emirates and Singapore.
Singapore has, what it calls, a progressive wage model for certain sectors, which it claims
incentivizes workers to upgrade their skills and take on more responsibility.
And you might be surprised to learn countries like Germany, Malaysia and Qatar barely adopted
minimum wage systems in the last decade.
But for the majority, most of the debate is centered around whether to increase the current
rate or not.
Let’s imagine that there is indeed a government mandate to increase minimum wage, then smaller
companies might decide, well, you know what, I don’t want to pay more.
I’m going to hire workers part-time, going forward.
And part-time will mean that these low-skilled jobs will essentially have less security for
the workers, and they will potentially be earning less as well.
Part of it is Economics 101, right?
If you increase the minimum wage, then it might follow that you have to lay off some
workers, and this might create a spillover effect.
It’s also important to look at the actual increases.
And some people argue that when you increase minimum wage, it's because not it's not just
because consumer prices are higher, potentially, but because those workers deserve to be paid more.
A 1993 study by the late-economist Alan Krueger and his colleague David Card found that employment
levels in the U.S. state of New Jersey actually grew slightly after a minimum wage hike the
year before.
It compared employment growth in New Jersey with Pennsylvania, which didn’t increase
the minimum wage.
The report, which challenged the conventional view then, that higher minimum wages led to
lower employment, won Card the Nobel Prize in Economics in 2021.
You can read different people, different economists, and they will show you different points of view.
Some will keep arguing that, indeed, increasing minimum wages can increase inflation because
people will have more money available, and therefore, they are more likely to spend it,
and that tends to increase inflation.
One thing’s for sure: No two countries will have the exact same minimum wage systems.
Many incorporate different features that can’t be categorized so easily.
In fact, countries are continuously adjusting their minimum wages according to the changes
in their economies.
In a post-pandemic future, there might be more labor market shifts.
A 2021 report estimates that more than 4.3 million jobs may disappear over the next decade,
displaced by automation.
And a lot of these jobs in industries that they have highlighted, they are either minimum wage
or low-wage jobs.
So, I think this will remain a topic of discussion for the future, for sure.
Essentially, a minimum wage isn’t a means to an end.
Some people do argue that going forward, minimum wages will become obsolete, because of automation.
And if you think about the concrete example, already in our modern lives, when you go to wage
the supermarket, you now have the option to self-checkout.
But because inequality is such a global problem, perhaps minimum wages as a policy deserve
our utmost attention.
Silvia, have you ever worked, you know, a minimum wage or a low-wage job?
I have, my first job was the minimum rate in the UK.
The only reason why I ask is because I've worked in a minimum wage job too, I think
I worked in some retail job, and I wasn't very good at it.