Minimum Wages

Posted on November 22, 2010 by

Whenever I talk about minimum wages, people are so angry and look at me like I am the enemy of the nation. I am not against protecting people from exploitation by employers – but it should not be via fixing a price for labour by government.

Before fixing a flat rate for all, Govt should look at the industry, the product it delivers, profitability and global competition, impact of changes in labour costs on the products marketability in domestic and global markets, etc etc or this will only end up in business closures and unemployment – A rather regulated wage rate per organisation than a compulsory minimum wages.

What would have happened if there was no such minimum wages?

People will be limiting their spending to their disposable income, so manufactures have to match the price of the goods to what people can afford – they could do this because they can recruit people for lower wages in turn will reduce the cost of production. People will still be getting goods and services as it is now as they are made available at prices they can afford. Manufactures can produce cheaper goods; cheaper goods will be sold more in quantity; and at the same time these products will succeed better from foreign competitors in global markets. Industries will grow, more people will remain employed, and this will result in less dependency on benefits and other government spending.

Everyone is praising China and India these days. US President and British PM are running around these countries for business. Why these countries are now going to be world economic leaders – how did they reach there?

It’s that simple old economic theory – let the market (demand and supply) decide price. This is applicable to everything, including labour. Price of labour (wages) should be determined by the demand for labour and supply of labour. We have to realise having a less paid job is better than not having a job – which makes the low pay the optimum pay – for both employees and employers. So, an increase in demand for labour will lead to increase in its price (wage) and a decrease in demand for labour will lead to a decrease in wages. Same way, high level of supply of labour (in other words high level of unemployment) will result in a fall in its price (wage) and when labour is scarce price will shoot up.

So what we have to do to get better rates of pay? 1) Bring unemployment down 2) Create more demand for labour. How? Only one way – improve industrial growth.

Govt’s priority must be developing industries by identifying, analysing and reducing/removing those obstacles within the economy which prevents manufacturing and any other sort of industrial growth. High corporate tax rate is just one of them.

Government’s job here is to make jobs, not to fix pay rates.

Posted on
Monday, November 22nd, 2010
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