Saturday, 22 October 2011
Problems Regarding Minimal Wage
After hearing last weeks’ presentation I found out that the single largest problem with minimum wage increases is that they result in job losses, because they increase labour costs for employers who respond by reducing the number of employees and/or the number of hours they work.
However I disagree with this because reasonably a minimum wage only has impact (negative or positive) at the same level that any price floor has an impact, that of above the natural market price. Then, the greater the market distortion the greater the impact. I suppose that it would be more precise to say that a meaningful minimum wage is a job killer, since anything below the market rate would be irrelevant (which is why lower income people are impacted the most).
So, to suggest that “a minimum wage” kills jobs doesn’t actually mean anything. What figure are we talking about? 1000won? Like so many arguments, there’s a built in assumption about where we are now that isn’t based on any sort of reality. Minimum wages have been chipped away at through inflation over the past few decades and there hasn’t been an appreciable rise in employment because of it.
I do however disagree with the whole idea of Big Mac index. So, it suggests that the minimum wage should at least be high enough to buy a Big Mac set, which is considered to be equivalent to a proper meal. But as far as I know the minimum wage in Korea is about 4100won, and that is sufficient to buy at least one meal(I’m not talking about fancy course dinners here).
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