Legislation on Minimum Wage

Legislation on Minimum Wage

Course: POLS1120 Political Economy

Instructor: Professor Michael E. DeGolyer

Bill Lei 08531501

Nell Tang 08532796

What is Minimum Wage?

the lowest hourly, daily or monthly wage that employers may legally pay to employees or workers

Analysis from textbook


Minimum Wage as “Price Floor”

Supply of labor > Demand of labor

at minimum wage level

Number of Unemployed labor

Problems of the textbook model

Professor Gary Fields argued : The textbook model measures only a one-

sector market. Low-wage labor markets characterized as

monopolistic competition.

-Employers have more market power than do workers.

The demand for the product the employees produce is highly inelastic.

Minimum Wage in the U.S.

In the U.S., minimum wages were first introduced nationally in 1938.

The federal minimum wage provisions are contained in the Fair Labor Standards Act (FLSA).

The federal minimum wage is $6.55 / hr effective July 24, 2008

Minimum Wage in the U.S.

Minimum Wage in China

The Ministry of Labor and Social Security set China's first minimum wage law on 1 March 2004.

Provinces, municipalities, and autonomous regions are allowed to legislate for their own minimum wage

Minimum Wage in China

Guangdong Province increased its minimum wage on 1 September 2006. The highest is ¥25.80 per month or ¥4.66 (~US$0.60) an hour (in Guangzhou city). The lowest is ¥20.70 per month or ¥0.69 (~US$0.25) an hour

Minimum Wage in the E.U.

In the European Union 18 out of 27 member states currently have national minimum wages. Many countries, such as Norway, Sweden, Finland, Denmark, Switzerland, Germany, Austria, Italy, and Cyprus have no minimum wage laws but rely on employer groups and trade unions to set minimum earnings through collective bargaining.

Minimum Wage in Australia

In 1896 in Victoria, Australia, an amendment to the Factories Act provided for the creation of a wages board.

1 October 2007, $13.74 per hour or $522.12 per week

1 October 2008, $14.31 per hour or $543.78 per week. Same as 2009.

Minimum Wage in Canada

The first minimum wage legislation in Canada was passed in 1918 by both British Columbia and Manitoba.

Two years later, Ontario, Quebec, Nova Scotia, and Saskatchewan followed suit.

These early wage laws applied only to women and only to some kinds of employment.


The legal minimum wages in each of Canada's provinces for 2009/2010 are as follows

Minimum Wage in Hong Kong

Currently, There is no minimum wage in Hong Kong for local residents.

But this issue has been discussed for years.


Some parties always assemble and go demonstration for the legislation.


In 2006, the HK government launched the Wage Protection Movement for cleaning workers and security guards, but it was unsatisfactory.

In July 2009, the bill of Minimum Wage was introduced to the LEGCO.


The level of the minimum wage will be based on the data from the Census and Statistics Department.

The ordinance is estimated with effect in 2010 or 2011.

Arguments for Minimum Wage Law

Increases the standard of living for the poorest and most vulnerable class in society and raises average

Encourages employee to work harder.

Does not have budget consequence on government.

Arguments for Minimum Wage Law

Stimulates consumption, by putting more money in the hands of low-income people who spend their entire paychecks

Decreases the cost of government social welfare programs by increasing incomes for the lowest-paid.

Arguments against Minimum Wage Law

Causes outsourcing and loss of domestic manufacturing jobs to other countries.

Reduces profit margins of business owners employing minimum wage workers, thus encouraging a move to businesses that do not employ low-skill workers.

Arguments against Minimum Wage Law

Businesses try to compensate for the decrease in profit by simply raising the prices of the goods being sold thus causing inflation and increasing the costs of goods and services produced.

Why do governments legislate on minimum wage ?

In the classical approach, minimum wage is considered as a means to intervene the market.

Hong Kong was criticized for the minimum wage legislation, as HK is said to be the freest economy.


Other than the problems of the textbook approach, economists seldom take political influences into account.

When politics are considered, the government needs to legislate for the minimum wage.


One possible reason, the pressure from the interest parties.

-like the unions and some of the Legislative Council members

Another possible reason, to maintain social stability.

Summary

Minimum Wage is becoming more and more common in different countries.

The legislation on Minimum Wage is not only an economic issue, but also a political issue.

References


David Card and Alan B. Krueger, Myth and Measurement: The New Economics of the Minimum Wage, Princeton University Press, 1995, pp. 1, 6-7.

Problems of the textbook model

Gary Fields, "The Unemployment Effects of Minimum Wages," International Journal of Manpower, Vol. 15, issue 2 (1994), pp. 74-81.

Minimum Wage in the U.S. http://www.dol.gov/esa/minwage/america.htm Minimum Wage in China http://www.sgs.com/newsletter_aug_06_-_english.pdf Minimum Wage in the E.U.

http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-NK-06-009/EN/KS-NK-06-009-EN.PDF

Minimum Wage in Australia

http://www.fairpay.gov.au/NR/rdonlyres/32FFBED2-CC68-45FE-B1B2-0D6478206DA2/0/AFPC_July07_Decision_ExecSum.pdf http://www.fairpay.gov.au/NR/rdonlyres/32FFBED2-CC68-45FE-B1B2-0D6478206DA2/0/AFPC_July07_Decision_ExecSum.pdf

References


http://www.cbc.ca/money/story/2009/01/23/f-money-minimum-wage.html

http://www.livingin-canada.com/minimum-wage-canada.html Minimum Wage in Hong Kong

http://www.takungpao.com/news/09/06/30/FYTX-1105191.htm Arguments for Minimum Wage Law

Richard B. Freeman (1994). Minimum Wages – Again!. International Journal of Manpower

http://www.epi.org/publications/entry/issue_guide_on_minimum_wage/ Arguments against Minimum Wage Law

http://www.nwu-oppose-offshoring.org/offshoring-campaign/high-tech-offshoring.html

http://www.heritage.org/Research/Labor/BG1162.cfm Why do governments legislate for minimum wage?

http://www.citizeneconomists.com/blogs/2009/03/11/do-we-need-minimum-wage-legislations/

Education

Legislation on Minimum Wage