Research brief on minimum wages (issue 4) – The narrowness of local discourse on minimum wages

 In Minimum Wage, Welfare & Labour
,

The narrowness of local discourse on minimum wages

  • The local discourse on minimum wages has been very narrow. Many ideas and perspectives relating to minimum wages have been overlooked. We would like to focus our discussion on a couple of neglected ideas and perspectives.

 

A. The right to a living wage

  • The ideas that 1) the minimum wage should be a living wage and that 2) earning a living wage is a human right have not been given sufficient attention.
  • That the minimum wage should be a living wage has mainly been advocated by trade unions.
  • The community, or at least the government, tends to conceive a minimum wage as a means to forestall excessively low wages only rather than a means to ensure that workers earn a living wage.
  • We uphold the principle that earning a living wage is a basic human right. This principle is consistent with international norms for minimum wages: The Universal Declaration of Human Rights (1948) of the United Nations, The European Social Charter (1961) of the Council of Europe.
  • The claim that earning a living is a basic human right is derived from a person’s fundamental right to life – a person has a claim on others or the community to freely access means of subsistence that exist in sufficient abundance.
  • One may ask: Why is it the responsibility of employers, rather than government-provided social programmes, to raise income levels?
  • In fact, the business sector has raised this query.

 

B. Parasitic trades and social costs of low wages

  • The aforementioned question points to another neglected area in the local discourse on minimum wages – employers who pay less than a living wage are parasitic or social parasites.
  • When market wages are insufficient for subsistence/social reproduction, workers and their families are forced to rely upon charities and public assistance. This amounts to an indirect subsidy to low-wage employers.
  • Taxpayers and the society are called upon to subsidize the operations of low-wage firms/parasitic trades.
  • Parasitic trades will have serious repercussions for the economy and society as a whole:
    • parasitic employers have an incentive to depress wages further
    • rather than improving the productivity of their businesses, the availability of subsidies in one form or another will thus encourage parasitic employers to expand the number of low-wage jobs and their low-productivity businesses
    • the society’s capital, brains, and manual labour, in the aggregate, will be less productive than they would otherwise be
    • an ever-greater number of workers will suffer from lower standard of living
    • the society will be forced to bear an ever-greater burden of providing subsidies to parasitic employers
  • A legal minimum wage, which requires employers to pay at least a subsistence wage, is one policy tool to protect society against this threat. It requires employers to bear the full costs of their operations and to improve their productivity.

 

C. Unfair competition between “self-supporting/efficient” firms and parasitic firms

  • That allowing the existence of parasitic trades is unfair to “self-supporting” employers paying higher than subsistence wages and “efficient” firms pursuing a high productivity strategy is another overlooked issue.
  • The unfairness lies in the fact that “self-supporting” or “efficient” firms as taxpayers are forced to subsidize the operations of parasitic firms so as to allow these firms to enjoy competitive advantage over them.

 

D. Perfectly competitive labour market vs monopsonistic labour market

  • It has been worried that a minimum wage will cause unemployment.
  • Such understanding of the relationship between minimum wages and unemployment is based on the perfectly competitive labour market model.
  • However, we have to emphasize that modeling the labour market as a perfectly competitive market is WRONG.
  • The labour market is dominated by employers and is characterized by unequal bargaining power – the employers have more market power or bargaining power over employees to set wages and workers are more desperate for work than employers are desperate for workers.
  • The labour market is more accurately characterized as monopsonistic/oligopsonistic rather than perfectly competitive.
  • The monopsonistic/oligopsonistic labour market model has seldom been mentioned in the local discourse on minimum wages.
  • In monopsonistic/oligopsonistic labour market, because of the imbalance bargaining power between employers and employees, the wage level is lower than it would otherwise be in the perfectly competitive labour market.
  • In such labour market, employers earn “excess profits” and employees are paid less than they are worth.
  • The “excess profits” and the “depressed wages” in the monopsonistic labour market allow the possibility of raising the wage level by instituting a legal minimum wage without putting workers out of work.

 

 

Prepared by Winston Ng ()

Hong Kong Democratic Foundation (香港民主促進會)

11 May 2010

 

 

 

 

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