The minimum wage is the statutory minimum level of payment for workers in the whole country or for specific categories of employees. “The primary goal of any minimum wage policy is to increase the income of those at very bottom of the wage scale” (Waltman 8). The minimum wage value is not always linked to the subsistence minimum. It is determined in each time period with the financial capabilities of the state. The minimum wage changes periodically. It is used for the calculation of the size of government taxes, fees and fines. For example, the penalty for crossing the street at an undisclosed location may be 1/10 of the minimum wage. The value of various fees and taxes from individuals is tied to the minimum wage, calculated as a fraction of minimum wage levels.
Ensuring minimum wage guaranteed by the law is the legal obligation for all employers. Organizations financed from budgetary sources implement the minimum wage from the relevant budgets. Other organizations do it to the extent of fundraising. The minimum wage has several functions. First of all, it is a guarantee established for the employee. The minimum wage should ensure the reproduction of the labor force. In an inflationary environment, the minimum wage is also used to establish the size of social security benefits and fines imposed administratively. In accordance with the conventions of the International Labor Organization, the minimum wage provides a guarantee of a minimum income of low-paid employees, prevents the workers’ exploitation, and can serve as a benchmark for individual employers and employees in determining the wage level. “The minimal wage is an attractive policy tool for poverty reduction and social justice” (Cunningham 1).
The minimum wage has the force of the law and cannot be decreased. It is written in the ILO Convention. The Convention was ratified in 51 countries. In accordance with this document, the following factors should be considered when determining the minimum wage level:
1. The needs of workers and their families, taking into consideration the cost of living, the general wage level in the country, the living standards of other social classes, and benefits related to social security.
2. Economic considerations such as the productivity levels, requirements of economic development, and the desirableness of reaching and preserving a high employment level.
There are both supporters and opponents of the minimum wage. Its supporters believe that it prevents the exploitation of poorly oriented in the situation or not quite physically healthy workers. “On the plus side, it protects the lowest-paid wage earners” (Eyraud and Saget 40). For example, physically unhealthy people can earn the minimum wage, which protects them from poverty. Opponents of the minimum wage believe that it cannot be too low, and therefore, ineffective, or its establishment leads to the disappearance of jobs, especially if a person does not make an exception for workers with physical disabilities or inexperienced workers with very low productivity. “Some politicians claim that raising the minimum wage is a way to help the working poor without cost to taxpayers” (Tucker 13). Critics also consider that the minimum wage causes inflation – as a direct result of the increase of a payment of some workers and because workers with wages just above the minimum require an increase of payment in order to recover the usual wage differentials with those groups whose salary has been just raised. For example, if a person receives more money, he/she begins to buy more goods. It creates more run on services and goods. Therefore, services and goods start looking quite expensive for people. The minimum wage is often established at a level inadequate to modern prices. There are certain hindrances to observing this wage level. However, according to the International Labor Organization, the introduction of the minimum wage increased the level of wages in many places, especially where the collective agreement through the trade unions is not developed or absent. “The International Labor Organization has designed the minimum wage as an international labor standard” (Neumark & Wascher 1). There is also a theory of an efficient wage, according to which the decrease of the minimum wage boosts the demand for unskilled employees in the formal sector and reduces the supply of labor in the informal one, resulting in the increase of the salary. Since this wage increases, there is a growth of wages of skilled workers. The latter, in turn, leads to the reduction in employment. The question of whether the minimum wage causes the increase of unemployment is widely debated.
History of Occurrence of the Minimum Wage
The concept of the minimum wage was first outlined by Pope Leo XIII in 1891 in his letter to the Church Fathers On New Issues. In this letter, he defended the right of workers to receive a salary sufficient to maintain a dignified existence and properly fulfill family responsibilities. However, only in the early 1900s, the idea of establishing the minimum wage began to receive growing support in the United States. Its supporters argued for the adoption of legislation protecting industrial workers from exploitation and allowing them to provide a reasonable standard of living. Opponents proceeded from the fact that wages should be determined by supply and demand on the market. “The theoretical debate suggests that the effects of the minimum wage on the labor market depend on the structure of the market” (Marshalle 188).
The minimum wage is the smallest amount that can be paid to employees for work per one hour, which is established by the law. The first law on the minimum wage applied only to women and children. It was passed in Massachusetts in 1912. Later, other states followed this example. However, in 1928, the Supreme Court decided that the law on the minimum wage in the District of Columbia contradicted to the Constitution violating the human right to conclude agreements.
At the federal level, the minimum wage was first established in 1931 in accordance with the Act of Davis-Bacon. This law established that wages in local labor markets should not be less than that paid on construction objects financed from the federal budget. After several unsuccessful attempts of the Roosevelt administration to introduce the overall minimum wage for the country, in 1938, the law was adopted on a fair rate of pay, which established the minimum of 0.25 dollars per hour for both men and women (Northwood 5). “Since that time, minimum wages have been introduced in some form or another in numerous other industrialized countries, as well as in some developing countries” (Neumark & Wascher 1).
After 1938, the amounts of the minimum wage constantly changed. In December 1989, the rise of the minimum wage was provided to 4.25 dollars compared to 3.80 dollars mounted in previous years. This was the first increase for more than nine years. The package of related acts also provided a minimum hourly rate at training of individuals who started working at the age of 20 years at a rate of 3.35 dollars.
The Minimum Wage in Different Countries
The practice of the state regulation of the minimum wage was first introduced in about 1900 in New Zealand and Australia and is now widespread in both developing and industrialized countries. In some countries, the government regulation of the minimum wage applies only to workers employed on several types of low-paid jobs. However, in most countries of Africa, Latin America and the Middle East, this regulation covers almost all workers. However, employees working in the informal sector may not have this advantage (Waltman 127).
Each country is unique for not only its culture and nature, but also its laws, orders or pricing policies. Developed countries raise the amount of the minimum wage relatively often. It usually occurs on January 1each year. To compare the minimum wages in different countries is not as easy as it might seem at the first glance. In one country, minimum wages may vary by regions, in the other – by industry, or the salary depends on the age of the worker. There are some states that have published the minimum wage law. However, unfortunately, the law is not always satisfied at 100%. It is due to the fact that countries have different mandatory deductions on taxes, social security and social insurance. However, there are countries where there is no set minimum wage, for example, Singapore.
The minimum wage in the US is different from state to state. The employer has no right to pay less than the specified minimum. Exceptions are professions that provide the receiving of tips. “In the United States, it is not reasonable to expect that changes in the minimum wage will have significant effects on aggregate labor market or productivity statistics” (Flinn 17). 38 states originated laws on the minimum wage during the session in 2014. 34 states raised the minimum wage up to the state minimum. In 2014, the minimum wage was raised in such states as Rhode Island, Michigan, West Virginia, Connecticut, Hawaii, Washington DC, Maryland, Minnesota, Vermont, Delaware, and Massachusetts. As of August 1, 2014, 24 states have minimum wages higher than the established federal minimum. 18 states, as well as Guam and the Virgin Islands, have the minimum wage equal to the established federal minimum of $ 7.25 per hour. Three states, American Samoa, and Puerto Rico have the minimum wage below the federal minimum. 1 state – New Hampshire – canceled the minimum wage set by the state in 2011 and became guided by the established federal minimum salary. In 5 states, the minimum wage has not been established (U.S. Department of Labor, Wage and Hour Division).
The minimum wage is the minimum limit of employees’ wages in the performance of ordinary work in normal working conditions. It is officially set by the state. The monthly payment of workers at enterprises of all forms of property completely who worked the set time and perform job duties cannot be below the minimum wage. The minimum wage is periodically revised taking into account the growth of consumer prices.
Cunningham, Wendy W. Minimum Wages and Social Policy: Lessons from Developing Countries. Washington: World Bank Publications, 2007. Print.
Eyraud, Francois, and Catherine Saget. The Fundamentals of Minimum Wage Fixing. Geneva: International Labor Organization, 2005. Print.
Flinn, Christopher J. The Minimum Wage and Labor Market Outcomes. Cambridge: MIT Press, 2008. Print.
Marshalle, Mary I. Economics of Unemployment. Hauppauge: Nova Publishers, 2006. Print.
Neumark, David, and William, L. Wascher. Minimum Wages. Cambridge: MIT Press, 2010. Print.
Northwood, Joyce M. Three Empirical Studies of the Impact of the Minimum Wage on Immigrants. Ann Arbor: ProQuest, 2008. Print.
Tucker, Irvin. Macroeconomics for Today. Boston: Cengage Learning, 2008. Print.
U.S. Department of Labor, Wage and Hour Division. “Minimum Wage Laws in the States.” United States Department of Labor. U.S. Department of Labor, 1 Sept. 2014. Web. 6 Nov. 2014. website
Waltman, Jerold L. Minimum Wage Policy in the United Kingdom and the United States. New York: Algora Publishing, 2008. Print.
Waltman, Jerold L. The Case for the Living Wage. New York: Algora Publishing,2004. Print.