The Real Cost of a Minimum Wage

Minimum wages are supposed to redress the imbalance in negotiating power between employers and workers.  The imbalance, it is argued,  results from the usually over-powering bargaining position of employers vis-a-vis employees; furthermore,  the fact that minimum wage is fixed nationally when it should be graded regionally to reflect local costs of living does not justify its abolition.

A government sets the minimum wage - either locally or nationally - on the basis of an assessment  of the requirements for a minimum standard of living.  However, the globalisation of labour through trade  (not so much through de-localisation, which affects only a tiny fraction of the labour force  in any country - in Holland, one of the most highly-affected countries  in the world, it affects only  2% of  domestic employment - , nor even through migration, which affects  on average 5-6% of domestic employment) impinges savagely on such a measure

According to the IMF World Economic Outlook ( June 2008)  employment of labour in the world went up by 60%  in 2005 but world employment weighted by   share of export  went up by 600% in the same period.  Competition in the labour market has become ferocious world-wide.

Something has to give.  Either international mobility of production factors - capital and labour and free trade in goods and services; or wage-levels in advanced capitalist countries.   If we cut wages, protect domestic production, and stop labour migrations and capital movements then we can have a minimum wage.  And even then, with all the detrimental effects thus produced on living standards, only as long as it is low enough not to raise wages, internally and internationally, to non-competitive levels.