Minimum wage

The minimum wage is the minimum pay a worker can be paid. It is expressed in monetary units per hour (eg. an employee may not be paid less than 6 dollars/yen/pounds, etc. per hour of work). Each country can set its own minimum wage laws and regulations.

Economic consequences of minimum wage laws

Minimum wage laws are often argued to bring about certain benefits, including:

Reducing low paid work, which may be viewed as unfair and exploitative.
Reducing the dependency of the low paid on state benefits, which may in turn reduce taxes.
Stimulate economic growth by discouraging labor intensive industry and encouraging more investment in capital and training.

Conversely, minimum wages may have disadvantages, including:

possible increased unemployment for low wage earners, as higher wage costs provide an incentive to reduce the number of workers employed.
an increase in the cost of basic goods and services - much of the cost is labor.
'knock-on effects', with increased wages for workers already earning above the minimum wage. For example, many Labor Union contracts are based on a fixed percentage or dollar amount above the minimum wage.

The costs and benefits arising from minimum wages are subject to considerable disagreement between economists.

Further economic issues

It may be argued that some of the adverse effects only occur when minimum wages are implemented by government fiat. If, however, they are implemented by providing wage subsidies the burden is transferred elsewhere as an externality, so there would not be increased unemployment but some other economic damage instead. On the other hand, it is arguable 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.

While straightforward Pigovian subsidies would have funding problems, particularly transitionally on introducing them, there are other approaches. One was examined by Professor Kim Swales of the University of Strathclyde (See [1]). 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 Prisoners' Dilemma" or "the Tragedy of the Commons").

In the long run this is equivalent to a "Basic Wage", which to be sustainable would have to be set somewhere below the minimum wage needed to live off so that workers would still need to compete for the remaining top up amount. With that, it becomes practical to compete for a low enough top up that effectively all the unemployed could price themselves into work - the living wage is separated from the minimum wage, since the minimum wage is no longer the sole means of subsistence.

Effectively this scenario once obtained when peasants had subsistence land in the form of smallholdings or allotments; like slavery, this offers a distasteful Coasian solution to an unemployment externality. The yield from these was never captured as cash flow and never showed explicitly in GDP. When this failed with the arrival of the Industrial Revolution, attempts were made to revive it with the "allotment movement" in Britain (not to be confused with US attempts to handle Indian Affairs). To the extent that developing countries still offer this, their low-end workers have a concealed non-cash subsidy and can outcompete equivalents in other countries.

In the United Kingdom the minimum wage is to £4.20 an hour for 22 year-olds or over, while the rate for workers aged 18 to 21 is £3.60 an hour.

Minimum Wage is also the name of a 42-second song by the alternative music duo They Might Be Giants.