The origin story of minimum wage laws, part 2

Part 2: Why did some industrialized nations wait so long to get a minimum wage? When did the UK, Germany, and France get minimum wage laws? Why do some industrialized nations still not have legal minimum wages? || This original research was produced for The Globalist Research Center and Arsenal For Democracy.

Why did some industrialized nations wait so long to get a minimum wage?

From a historical perspective, minimum wage laws were implemented first in countries where trade union movements were not strong. Countries such as the UK that traditionally had strong labor unions have tended to be late adopters on minimum wage laws.

In those countries, powerful unions were able to bargain collectively with employers to set wage floors, without needing legislative minimums.

The early gold standard guideline for government participation in wage setting was the International Labor Organization’s Convention No. 26 from 1928 – although many industrialized countries never adopted it.

The convention said that governments should create regulatory systems to set wages, unless “collective agreement” could ensure fair effective wages. This distinction acknowledged that, by 1928, there was already a major split in approaches to creating effective wage floors: leaving it to labor organizers versus using statutes and regulators.

When did the UK, Germany, and France get minimum wage laws?

Much like pioneers New Zealander and Australia, the United Kingdom did adopt “Trade Boards” as early as 1909 to try to oversee and arbitrate bargaining between labor and management. However, its coverage was far less comprehensive than Australian and New Zealand counterparts and cannot be considered a true minimum wage system. Instead, UK workers counted on labor unions to negotiate their wages for most of the 20th century.

The Labour Party introduced the UK’s first statutory minimum wage less than two decades ago, in 1998, when it took over the government following 18 years of a Conservative government that had focused on weakening British unions. The country’s current hourly minimum wage for workers aged 21 and up is £6.50 (i.e. about $8.40 in purchasing power parity terms), or about 45% of median UK wages.

Despite opposition to minimum wages in some quarters, The Economist magazine noted recently that studies consistently show that there is little impact on hiring decisions when the minimum wage level is set below 50% of median pay. Above that level, some economists believe low-level jobs would be shed or automated, but this is also not definitively proven either.

In fact, not all countries with minimum wages above that supposed 50% threshold — a list which includes at least 13 industrialized economies, according to the OECD — seem to have those hypothesized problems. True, some of them do, but that may indicate other economic factors at work.

Germany, Europe’s largest economy, only adopted a minimum wage law after the 2013 federal elections. Previously, wages had generally been set by collective bargaining between workers’ unions and companies.

As a result of the postwar occupation in the western sectors, Germany also uses the “codetermination” system of corporate management, which puts unions on the company boards directly. This too encourages amicable negotiations in wage setting, to ensure the company’s long-term health, which benefits the workers and owners alike.

The new minimum wage amounts to €8.50 per hour ($10.20 in PPP-adjusted terms), or more than 45% of median German pay.

However, in some areas of Germany, the local median is much lower. There, the minimum wage affords significantly more purchasing power. In eastern Germany, the minimum is about 60% of median wages.

In France, where unions have long had a more antagonistic relationship with management, a minimum wage law was adopted much earlier – in 1950. It is now €9.61 per hour (about $10.90 in PPP-adjusted terms), or more than 60% of median French pay.

N.B. Purchasing-power currency conversions are from 2012 local currency to 2012 international dollars rounded from UN data.

Why do some industrialized nations still not have legal minimum wages?

Because of their generous social welfare systems, one might assume that the Nordic countries were early adopters of minimum wage laws. In fact, Denmark, Sweden, Norway, Finland, and Iceland all lack a minimum wage, even today.

Instead, wages in these countries are virtually all set by collective bargaining in every sector – conducted between workers’ unions, corporations, and the state. (This is known as tripartism.) Non-union workers generally receive the same pay negotiated by the unions.

A prevailing minimum or average lower-end wage can usually be estimated, but there is no law. In U.S. dollar terms, Denmark’s approximate lowest wage level is higher than almost every minimum wage in the world. Mid-level wages are even higher. Even McDonald’s workers in Denmark reportedly make the equivalent of $20/hour.

 
Missed part one? New Zealand, Australia, Massachusetts, the New Deal, and China: How governments took an active role initially, and how they balance economic variability now.

Fair wages are just another operational cost to meet

There are op-ed columnists weeping about all the jobs a $15 wage floor would supposedly eliminate, as if companies couldn’t just cut executive pay and shareholder payouts. Some still insist that, to avoid spurring unemployment, it would be better to pay everyone less than they need to pay bills.

I hate to break it to them, but the first goal of paid work is to get workers enough money to survive, not to give everyone something to do. But at any rate, there’s just so much evidence that reasonable minimum wages don’t cause mass unemployment (despite what those folks seem to think).

Really, it’s all a matter of priorities. Wages are just part of the field conditions in which companies compete under a properly regulated capitalist market, along with taxes and supply costs and anything else you can imagine a company needing to pay for. We’ve decided not to properly regulate the labor market, so companies use money for other stuff (or profits), and not for wages.

As FDR argued, if your business literally can’t operate without underpaying workers, it doesn’t deserve to operate. If higher wages for low-level workers is the breaking point for your company and no internal changes can save it, your company is a disaster. A properly regulated market would adhere to the principle of corporate survival of the fittest, but “fittest” would include ability to pay fair wages without bankruptcy. Small businesses wouldn’t go bust automatically either, because all workers would be getting paid more and thus have more to spend locally.

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Big Business is now creating chronic U.S. underemployment

One of the perennial problems in accurately measuring the U.S. labor market is how to handle “underemployment” or involuntary part-time employment by people who want to be working full time. The official Bureau of Labor Statistics defines this category as follows:

Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

 
Those people, whether working 30 hours a week or 10 hours a week, even at or near minimum wage, are ineligible for unemployment insurance benefits or virtually any other program that would help someone who was completely jobless. Any paying work at all, even when it’s not enough to make ends meet, usually kicks people out of eligibility for such programs.

More than five years after the peak of the 2007 U.S. recession, many Americans find themselves in this category of being “employed part time for economic reasons.” The U6 measure of unemployment, which factors these people into the official rate, stood at 12.1% in June 2014 — just shy of being double the official unemployment rate. Almost 7 in 10 part-time workers right now would like to work full-time.

The decision to leave underemployed people out of the official unemployment figures, as I’ve been arguing for five years, has probably been a major factor in not recognizing the severity of many of the emerging structural problems in the part-time work arena that ripple back into the wider consumer economy negatively. Instead, we were busy congratulating ourselves for two decades on supposedly having much “lower” unemployment than Western European economies.

Those economies, which generally use comprehensive definitions of unemployment much closer to our U6 metric, were rarely substantially higher than our U6 rate of unemployed plus involuntarily underemployed persons. Moreover, their “unemployed” people were, in fact, often working part-time (legally or illegally) at rates the same as or higher than our labor force was. So their unemployed/underemployed populations were in far less dire straits than ours during the same period, even without getting into the differences in social safety nets.

Let’s examine one of the big emerging problems that such measurement definitions helped obscure: Involuntary part-time employment for corporate profit reasons, rather than genuine economic reasons.

Often, at least in the past, the “economic reasons” for the lack of full hours came in the form of hours cutbacks (in place of mass layoffs) or general economic belt-tightening, during economic contractions/slowdowns/recessions, by those in positions to be hiring. That’s especially true at the small-to-medium business level.

But a far more insidious and damaging trend has exploded on to the scene from the Big Business end of the spectrum, as huge American corporations not only decline to hire more and more of their hourly wage workforce for full workweeks but then demand these part-time workers be “on-call,” without compensation, to work at virtually any hour, day or night, seven days a week. The schedule changes from week to week and from day to day, at the discretion of the corporate managers.

Almost half of all part-time workers, according to the Times, now have one week or less of advanced notice on their schedule. Among 26-32 year olds working part time, that figure is 47%. Beyond young workers, this problem disproportionately affects women and non-white workers.

In an ongoing series of articles from the New York Times examining the prevalence and consequences of this pernicious staffing practice, we can read example after example of people being forced not only to work part-time but to be available full-time without pay to work the paid hours, which prevents workers from taking second jobs to supplement their hours or finding a better/full-time job or completing their education. Here is one testimonial:

“You had to be available every minute of every day, knowing you would be scheduled for no more than 29 hours per week and knowing there would be no normalcy to your schedule,” he wrote. “I told the person I would like to be scheduled for the same days every week so I could try to get another job to try to make ends meet. She immediately said, ‘Well, that will end our conversation right here. You have to be available every day for us.’

“I asked, ‘Even though I’m trying to get another job?’ ‘Yes.’ Then she just stared at me and asked me to leave. What kind of company does this? What kind of company will not even let you get another job?”

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In defense of the minimum wage

There’s a proposed bill in Congress to raise the Federal minimum wage for the first time since 2009. It won’t pass, given Republican control of the U.S. House, but it’s still sparking debate. And by “debate,” I mean we’re getting to hear the same tired and false arguments against the minimum wage (let alone against raising it) that we hear whenever the topic comes up. I’d like to talk about one of these more common arguments.

People who want to eliminate the minimum wage often claim more people would be able to get jobs if wages weren’t so high (because businesses could hire more people with the same amount of money). For some, this is just a claim they make without believing it, but others have been duped into believing it’s actually a legitimate argument.

Let’s break down how this doesn’t make sense. Sure, we could employ everyone in the country for pennies an hour (if, for the sake of argument, people were willing to accept that), but that’s not really the point of having a job. The core goal of getting a job, at minimum, is to support, feed, clothe, and shelter one’s self (and often a family but not necessarily). The core goal of getting a job, for everyone except maybe some bored person born into great wealth, is not to have something to do from 9-5.

How does someone seriously believe that the goal of promoting higher employment is just to get everyone jobs even if the jobs don’t pay them enough to be able to do anything? Ending the minimum wage would just put more people on government benefits which also costs money and which the same conservatives opposing the minimum wage don’t want either.

And if not that, then it would create an expensive and awful Dickensian/Malthusian nightmare land with mass poverty, out-of-control levels of crime and associated violence, etc. Which eventually negatively impacts business — even without accounting for the lost/reduced purchasing power of the consumer base. We know this because it’s called the last three decades of the 19th century.

The minimum wage is not an economic “distortion.” It’s an efficient, market-oriented tool to address poverty that is probably actually better for business in the long run than the alternatives.

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