Statutory Minimum Wage Levels

Governments can set statutory minimum wage levels to protect employees against exploitation by employers

Minimum wage policies were first introduced in 1894 in New Zealand, and are now widespread, according to a BeBusinessed.com article: History of Minimum Wage.  They were introduced to protect people against exploitation and to reduce inequality: they are a form of political regulation of the labour market.  They are defensive measures, implemented for social and political reasons.

The economics of supply and demand suggest that if the cost of labour increases the demand for it will fall.  Too high a minimum wage, therefore, might increase unemployment.  An Economist article in December 2013, The logical floor, described such considerations in setting an appropriate level for a minimum wage:

“In flexible economies a low minimum wage seems to have little, if any, depressing effect on employment.

…High minimum wages, however, particularly in rigid labour markets, do appear to hit employment. France has the rich world’s highest wage floor, at more than 60% of the median for adults and a far bigger fraction of the typical wage for the young. This helps explain why France also has shockingly high rates of youth unemployment: 26% for 15- to 24-year-olds.”

If statutory minimum wage levels are set too low, workers have to claim benefits to supplement their incomes; the government is then, in effect, subsidising employers.  When America was considering an increase in its minimum wage, it was remarked that government spend on benefits might be reduced by doing so – a point made in a Pundit Planet article, GOP Politician-Turned-Entrepreneur Supports Big Minimum Wage Boost:

“Ron Unz, a Silicon Valley multimillionaire and registered Republican who once ran for governor and, briefly, U.S. Senate, wants state voters to endorse the wage jump that he predicts would nourish the economy and lift low-paid workers from dependency on food stamps and other assistance bankrolled by taxpayers.”

Government tax receipts might be increased by a higher minimum wage, especially in families with more than one person earning.

If the minimum wage is set above the level of welfare guarantee for a single person, it acts as an incentive to work.

Consumer demand increases if low-paid people have more money in their pockets, so some more jobs might be created – offsetting the jobs lost as a result of higher labour costs.

A relatively high minimum wage attracts economic migration from other countries – but also defends existing inhabitants from having their wages reduced when their bargaining power suffers from the extra supply of labour.  An increasing proportion of jobs are then at, or just above, the minimum wage.


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This page is intended to form part of Edition 4 of the Patterns of Power series of books.  An archived copy of it is held at https://www.patternsofpower.org/edition04/3333.htm.