Predictions of a healthy economic growth rate are currently coinciding with reports of a widening income gap. For the last decade, wages for the lower paid have stagnated. There have long been calls for the government to raise the minimum wage, a contentious, intractable issue without an obvious solution in sight, despite the raises announced on Monday. Unfortunately, it is the low-paid, marginal workers, who at first glance stand to gain most from an increase, actually stand to lose most from such a policy.
The definition of the term itself is problematic. What do we mean by “minimum,” and if a worker is paid below the minimum, who should make up the difference?
In Taiwan, minimum wage refers to the minimum standard of living, although that still leaves the big question of who defines that standard. Even if it could be defined and a national consensus reached, who should makes up the difference between a substandard and the minimum standard of living?
Since employers pay wages, this responsibility would inevitably fall on them, but they are not going to want to pay above the market level and that depends on workers’ “contributions.”
There is a level at which employers are either unwilling or unable to pay. They might see profits fall and may even find themselves running at a loss and be forced to close factories. The other option would be to make people redundant. Employers are theoretically only able to exploit workers in a market in which they have a true monopoly.
It is not difficult to see that workers who are paid the minimum wage are those with the lowest productivity levels, including unskilled and child laborers, apprentices and interns. We refer to these groups as marginal labor, and they exist in a state of almost perfect competition. If the government strictly implemented a minimum wage policy, a huge slice of these marginal workers, the vast majority of the most vulnerable at the bottom of the pile, would lose their jobs.
Any employers who were originally willing to train these unskilled workers would be forced to reassess their plans. While this would slim operations down, with the least efficient factories being closed, it would also have a huge effect on the employment situation. This would be devastating for marginal workers whose prospects have been made all the more precarious by globalization.
Gary Becker, the 1992 Nobel Prize laureate for economics, has observed that “a higher minimum wage will further reduce the employment opportunities of workers with few skills.” Becker saw this as irrefutable and advised strongly against any attempt to increase the level, regardless of the skill of the politician who seeks to introduce it.
The issue, however, has gone beyond the purely economic and has moved into the political, and there have been perennial attempts to do just that. In fact, since the Labor Standards Act (勞動基準法) came into effect in 1984, the minimum wage debate has reared its head on a regular basis, almost every year in fact. Many is the time that the government has commissioned academic institutions to do an objective estimate of the potential impact of an increase.
Although we can draw a relatively clear and consistent positive correlation between an increase in the minimum wage and unemployment for disadvantaged and marginal workers, there are complicating factors, for which empirical results give a picture, that is far less cut-and-dried. In Taiwan factors beyond the market level of wages need to be considered, including labor insurance and foreign labor wages.
In point of fact, the real issue behind the minimum wage is not the minimum wage at all, it is more to do with the basic subsistence level for an individual and this relates to social welfare, which in turn, is the job of the government.
If companies and employers concerned themselves with such matters it would constitute a distortion of the efficient operation of the market. However, since we are discussing issues such as negative income tax and the poverty line, we now have a perfect opportunity to explore what exactly we mean by the “minimum wage.”
As to the problem of average income distribution, one would need to start with the reform of an unfair tax system and environment. The best way to raise wages is to increase the productivity of marginal laborers. This is an important, albeit unrelated topic, best saved for another day.
Wu Hui-lin is a researcher at the Chung-Hua Institution for Economic Research.
TRANSLATED BY PAUL COOPER
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