Home / Columnists/ Legislating a minimum wage; practical or what?

Legislating a minimum wage; practical or what?


Comments / {{hitsCtrl.values.hits}} Views / Friday, 11 September 2015 00:00


Untitled-5For years there has been a sense among many unions that the working class is getting left behind, either it is the EPF getting plundered or the wage increases are insufficient, while the rich got richer. With the elections out of the way now the time has come to tell how they plan to address this income divide.

Unions in general invariably propose increasing the minimum wage (whatever way you define it), while the tripartite partners are still to agree on a definition for the minimum wage and how much it should be. 

While certain politicians are in favour of raising the minimum wage, they have been vague about how large an increase they would support. It’s still early to know how a hike now will affect the job market, because the preliminary data we have aren’t reliable. However, there is evidence globally that irrational minimum wage increases have led to the loss of service jobs. 

For example, in 2014 the congressional Budget Office in the United States found that increasing the minimum wage to $10.10 an hour would result in employment falling by 500,000 jobs nationally. University of California-Irvine economist David Neumark recently pointed out that less than 20% of the earning benefits would only flow to people living below the poverty line.

 

Helps the employed

Such minimum wage laws often help people who have jobs and those who manage to keep their jobs, but hurt those without a job. If minimum wages helped alleviate income inequality, you’d expect to see a lot of that in the US and UK. 

It’s understandable that people who have jobs would like a raise. But what about the people who don’t have jobs? The national labour-participation rate and a wage increase means little to those who aren’t in the labour force but want a job now. The same goes for those working part time because they’re unable to find full-time job opportunities.

 

More expensive

If government makes something more expensive by passing legislation, businesses that have no choice will use less of it. They will also pass on what consumers can absorb through increased prices. Entry-level jobs will become increasingly scarce as businesses use labour more efficiently and in some cases, turn to automation.

So what’s the solution? The first step is realising that income inequality is a symptom of a larger problem. It may appear sympathetic and for a moment alleviate the headache, but it won’t cure the real problem. The real problem is that for more than five years the crowding out of the private sector has eliminated opportunities.

When political leaders talk about spurring economic growth by reducing regulation, reforming the tax code, passing pro-growth, public service reform and improving skills and education, they are addressing the underlying problem that drives income inequality and help the working class and finally grow the economy.

 

Economic growth

There is only one thing that will decrease poverty and increase economic opportunity: that is economic growth. And history has clearly shown that there is only one system that can produce economic growth sufficient to meaningfully reduce poverty and increase opportunity: free enterprise. 

The best development for workers would be a thriving economy in which companies have to compete to sell their products and services and the government stays out of running enterprises and also allows the private sector to operate as free enterprise.

(The writer is a thought leader in HR.)


Share This Article


DISCLAIMER:

1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.

COMMENTS

Today's Columnists

Maximum Residue Level: Dilemma of agricultural product exporters in Sri Lanka

Wednesday, 19 September 2018

Due to increased emphasis on consumer health, majority of developed countries such as EU, Japan and the US insist on MRL testing of food items which has to be done by the exporter. The Codex Alimentarius Commission which is an inter-governmental bod


East Container Terminal blunder: Learn from Chinese

Tuesday, 18 September 2018

Minister for Ports and Shipping Mahinda Samarasinghe informed the press in August that Cabinet has approved the development of East Container Terminal (ECT) of Colombo Port by the Ports Authority. According to approval: nPorts Authority would develop


President Sirisena, playing with fire, must take note that smoke will get into his eyes

Tuesday, 18 September 2018

Penchant for playing with fire President Gamaralalage Sirisena has always had a penchant for playing with fire. He did fire-play at the local government elections when he made a disastrous U-turn and went round country blasting the party and its lea


Response to claims that Sri Lanka was in a ‘debt trap’ in 2014 due to ‘Chinese loans’

Monday, 17 September 2018

Several Western analysts have carried out a relentless media campaign in keeping with their own geopolitical agenda, to suggest that China was luring Sri Lanka into a carefully engineered debt trap.


Columnists More