The Case for a Global Minimum Wage
- Stella Wilson
- May 25, 2022
- 4 min read
Since the 1980s, free trade and globalisation have encouraged nations and firms to reduce labour regulations and wages to attract investment, and gain price competitiveness. This is known as the race to the bottom, and such competition is responsible for spiralling decreases in global wages and working conditions in both developed and developing countries.
A global minimum wage has been proposed as a way to counteract the consequences of the race to the bottom, for example working poverty. Contrary to popular belief, a global minimum wage would not mean a single fixed minimum wage for the planet - it could instead be pegged to living standards in a country, or set at 50 percent of a country’s median income. Therefore, minimum wages would not vary significantly between countries and would ensure a livable wage for all.
If it is implemented, companies could no longer move production to other countries with lower wages, also known as offshore production, so low-skilled workers do not face downward wage pressures and thus can fight for higher wages. This would not only benefit lower-income countries with large manufacturing industries, but also higher-income countries such as the US and the UK, as it would slow down their decline in manufacturing. Nationalists, including Trump in the US and Marine Le Pen in France, often blame low-skilled workers in developing countries for this decline, so a global minimum wage would reduce the decline in manufacturing in higher-income countries without encouraging nationalism and rising protectionism. It would also increase global worker solidarity and bargaining power.
A global poll from the International Trade Union Confederation revealed that 84 percent of respondents found their national minimum wage to be insufficient for a decent life. Therefore, a global minimum wage would enable workers to receive a livable wage, thus considerably reducing global in-work poverty.
The global minimum wage has received criticism that it would increase unemployment and reduce aggregate supply, as argued by classical economic theories. However, according to the Centre for Economic and Policy Research, the minimum wage has no discernible effect on employment, and a potential rise in costs can be offset by reductions in labour turnover, improvements in efficiency, reductions in wages of higher earners (wage compression), and small price increases.
Furthermore, Economist Robert Pollin found that doubling the wages of sweatshop workers in lower-income countries only increases prices in higher-income countries by 1.8 percent, and a study by the National Bureau of Economic Research concluded that consumers in high-income countries are willing to pay 28 percent more on a $10 item if it is made under “good working conditions.” Therefore, a global minimum wage is unlikely to create significant wage-push inflationary pressures or decrease aggregate demand.
Despite numerous benefits to a global minimum wage, questions remain about its nature and its implementation in practice.
The Dhaka garment factory collapse in 2013, in which 1,134 people died as a result of unsafe working conditions and managerial negligence, incited concern about poor working conditions in low-income countries. Following this tragedy, Nobel Laureate Muhammad Yunus proposed that foreign buyers set a minimum international wage to reform the garment industry in Bangladesh, equivalent to 0.5 USD per hour (double the typical wages in Bangladesh). Yunus believed that the reform would encourage companies to increase productivity and specialised labour skills to retain their competitiveness, as they can no longer do this by cutting wages and deterioriating working conditions. However, some people believe that the 50 cents minimum wage would still be too low, and would unfairly hurt the Bangladeshi economy by reducing its comparative advantage.
Economist Thomas Palley instead recommends a fixed minimum wage at 50 percent of a country’s median wage, which would enable countries with cheap labour costs to maintain their comparative advantage. This would also adjust automatically to wage changes and inflation within the domestic economy. However, 50 percent of the median wage could still be far too low for a decent living standard, so the global minimum wage would also need to be above the international poverty line of $1.90 per day.
The International Labour Organisation (ILO) has advocated for a global minimum wage since its foundation in 1919. Despite this, it acknowledges difficulties in both the implementation and enforcement of any minimum wage, let alone a global one. Across the world, an average of 15 percent of workers are paid below their country’s minimum wage, and in some countries, more than half of all wage earners entitled to a minimum wage are paid below the legal floor. Large informal sectors in some lower-income countries, such as Uganda and Guatemala, make the regulation and enforcement of a minimum wage very difficult. Furthermore, some countries, such as China, have up to 50 different minimum wages varying between location, age groups, and sectors, which raises concerns about whether similar adjustments would need to be made to a global minimum wage system.
Although difficult to implement, a global minimum wage would certainly be possible, especially if introduced gradually. For example, the International Convention for a Global Minimum Wage’s proposal from 2013 would be initially sectorial and specific to exported production. The grassroots Asia Floor Wage Alliance campaigns for a living wage for the garment industry in Asia, and is calculated based on each country’s Purchasing Power Parity, factoring in the basic needs of workers which differ between countries. Furthermore, implementation could be modelled on international trade law, with a body such as the World Trade Organisation acting as a forum for multilateral agreements on targets and a mediator for disputes.
References
https://www.worldatlas.com/articles/15-countries-with-the-highest-rates-of-informal-employment.html
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