Should national governments introduce minimum wages or should they leave it up to the market to decide on wages?
I support Market to determine wage rates. Facts and reasoning for justifying my point are following.
Minimum wage laws were invented in Australia and New Zealand for purpose of guaranteeing the minimum standard of living for unskilled workers. Minimum wage laws can set the minimum wages but can’t guarantee job. In practice they are often set for low skilled workers.
(Gorman) . The International Labour Office in
Geneva, Switzerland reports that some 90% of countries around the world have
legislation supporting a minimum wage. The minimum wage in countries that rank
within the lowest 20% of the pay scale is less than $2 per day, or about $57
per month. The minimum wage in the countries that represent the highest 20% of
the pay scale is about $40 per day, or about $1,185 per month. (Smith).
For USA, Minimum wage in 1968 was $1.60 per hour while it was $7.21 per hour on a 1996 constant dollar scale and minimum wage in 1996 was $4.75 per hour. This shows that rise in minimum wages have not been keeping pace with inflation.
(Federal Minimum Wage Rates,
Productivity of workers has risen between 1960 and 2000 but the wages have not
kept pace with the increase in productivity. But US Government kept the minimum
wage rates low in order to benefit the industrialist and petty shop owners. (Kulinski, 2013)But this benefit
came at the cost of those who deserved to be receiving more. Although
proportion of people working on minimum wage rate are just 5 percent of the
population. (Smith) Hence there is
no point in letting government set minimum hourly wages artificially low to
benefit industrialist. Although the intentions of the US Government were not
just to benefit but also to avoid losing jobs to foreign countries via outsourcing
and shifting of factories to China due to concerns of high labour cost. (James A. Dorn, 2013).
It is a law in most of the countries today that working below the minimum wage rate is a punishable offence. Hence even if someone is ready to work below the minimum wage rate voluntarily, he/she will not be able to do so. Hence to give liberty to people it is better to adopt market determined wage rate. Also there is cost of enforcing the minimum wage law which otherwise can be used to make poor’s better off by choosing market determined wage rate.
It has been proved for several countries over the years that minimum wage increase unemployment among the low skilled workers.
(Gorman; Soundararajan, 2013). Market
determined wage rates also encourages low skilled workers & students to
acquire more skills and to employer an option to provide training and
apprentice facilities for novice workers to enter lucrative skilled job market.
(James A. Dorn, 2013)
There is always a fear with minimum wage laws that state may set the minimum wages at higher levels that labour supply starts to decline due to backward bending nature of supply curve. Such effects were visible in India when government started MGNREGA programme.
(Vanitha S. M., 2011)
Federal Minimum Wage Rates, 1955–2013. (n.d.). Retrieved November 10, 2014, from infoplease.com: http://www.infoplease.com/ipa/A0774473.html
Gorman, L. (n.d.). "Minimum Wages", The concise Encyclopedia of Economics, Library of Economics and Liberty. Retrieved November 8, 2014, from http://www.econlib.org/library/Enc/MinimumWages.html
James A. Dorn, R. R. (2013, April 18). Abolish the Minimum Wage Full Debate- Intelligence Squared U.S. IntelligenceSquared Debates. London, United Kindom. Retrieved November 10, 2014, from https://www.youtube.com/watch?v=84t4pTUDFGo
Kulinski, K. (2013, December 12). Staggering Minimum Wage Facts. Secular Talk Radio Network . Retrieved November 9, 2014, from https://www.youtube.com/watch?v=Pc8xtbUhpQ4
Smith, L. (n.d.). The Minimum Wage: Does It Matter? Retrieved November 10, 2014, from Investopedia.com: http://www.investopedia.com/articles/07/minimum_wage.asp
Soundararajan, V. (2013, April 8). Minimum wages and enforcement in India: Inverted U-shaped employment effects. Retrieved November 8, 2014, from http://www.iza.org/conference_files/worldb2013/soundararajan_v9070.pdf
Vanitha S. M., P. S. Srikanthamurthy (2011). An Economic Analysis of MGNREG programme in Mysore district of Karnataka. Agricultuarl Economics Research Review, 24, 414-422.