Expository essay: The Minimum Wage
Instructions:
Minimum wages have been defined as the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract. Following this definition, minimum wages exist in more than 90 per cent of the International Labour Organisation's (ILO) member States. The purpose of minimum wages is to protect workers against unduly low pay. They help ensure a just and equitable share of the fruits of progress to all, and a minimum living wage to all who are employed and in need of such protection. Minimum wages can also be one element of a policy to overcome poverty and reduce inequality, including those between men and women. Minimum wage systems should be defined and designed in a way to supplement and reinforce other social and employment policies, including collective bargaining, which is used to set terms of employment and working conditions. Historically, the purpose of minimum wages has evolved from a policy tool to be used selectively in a few low-wage sectors to an instrument of much broader coverage.
There is also a risk of abuse. Hence, even in those industries or occupations in which such a method of payment is longestablished and well-received by the workers concerned, there is a need for safeguards and legislative protection. This can be done in different ways:
• Prohibiting in-kind payments as part of the minimum wage. In Spain, the legislation allows for the inclusion in the wage of payments in kind up to 30 per cent, but prohibits it as part of the minimum wage. In Cambodia, in-kind payment cannot be considered as part of the minimum wage.
• Allowing a maximum percentage of the wage: While no Conventions or Recommendations fix a specific threshold for payments in kind, the ILO Committee of Experts has expressed doubt concerning payment in kind that exceeds 50 per cent of the wage.11 Most countries have lower thresholds, with many not allowing in-kind payments exceeding 30 per cent of the wage.
• Setting a maximum level: Some countries designate the specific value of benefits in kind. In the domestic work sector in Switzerland, food and housing can represent a maximum of 33 CHF per day. A similar system also functions in France.
• Valuing in-kind payments at cost or less than the cost to employers: In order to preclude employers from profiting from the provision of payment in kind, some countries explicitly state that employers may not charge more than the actual cost of the goods provided. Other countries use the price a worker would pay for a product, service or housing if he or she were to buy it.
• Limiting the value of in-kind benefits to a multiple of the minimum wage: In Chad and Senegal, the value of one meal is equivalent to one hour worked at the minimum wage.
Raising the minimum wage would have four direct effects on the aggregate demand for goods and services. First, consumption would be reduced among people who became jobless because of the minimum-wage increase. In estimating that effect, CBO accounted for lower savings and some borrowing by people who would thereby avoid a sharp reduction in their standard of living. Second, additional spending by affected workers with earnings increases would boost demand. Third, demand would be reduced because business owners and shareholders would absorb part of the cost of the minimum-wage increase in the form of reduced profits and therefore would reduce their spending. Fourth, demand would also be reduced because affected employers would pass part of their increased costs on to consumers in the form of higher prices for goods and services; those higher prices would reduce the average consumer’s purchasing power, resulting in less spending by consumers after adjusting for inflation.
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