Global Wage Issues
In order to understand minimum wages on a global level, this paper will consider the labor situations of three areas in depth: China, India, and Europe. Historically, wages in China have been notoriously low. However, wages have been increasing due to a recent worker shortage, and may exceed the price of India's employment. Some European countries, in constrast, have instated a higher minimum wage that the United States'. However, these minimum wage laws are often not substantial enough to reach that nation's poverty line. There has been some discussion of a global minimum wage law. A law like this would have benefits, but it could also harm the global economy.
CHINA'S LABOR HISTORY
Unfortunately, it is difficult to find reliable statistics of China. The few records that exist are not comprehensive, and it is hard to cross-reference due to differences in payment schedules and currency. A common form of payment in China was tael, 37 grams of unminted silver. During the 1700s and early 1800s, wages in China slightly but steadily increased. In 1976, the average daily wage for unskilled workers was 0.03 tael. In 1813, the average wage was abour 0.04 tael. Those who lived in large cities received higher pay, due to a higher cost of living. The highest wages were earned in Manchuria and Xinjiang, and the lowest in Fujian.(1) In the late nineteenth century, wages rose to about 0.08 tael per day. Although this seems like a large increase, workers in China recieved far less payment than Europeans performing similar jobs. However, the standard of living of Chinese workers was comparable to European workers.(1)
China became increasingly urban. Many poor families moved away from the countryside and into cities to earn a living. In the 1960s and 1970s, China attempted to curb the migration. Rural to urban migration increased federal spending in the form of social services and road maintainance. Also, because the number of farmers were decreasing, the supply of agricultural goods decreased, causing their prices to rise. To reduce these labor costs, China focused on developing industries that relied heavily on capital (buildings, factories, and other man-made resources) and a smaller labor force. This led to a surplus in laborers, forcing unskilled workers to compete for extremely low-paying jobs.(2)
Foreign companies were enticed by China's huge supply of willing workers. China also encouraged business by forming Special Economic Zones; businesses established in these areas were given special tax breaks, and the power to determine the size and pay of their work force.(2)
CHINA'S CURRENT SITUATION
Companies have long enjoyed this labor surplus. For the 88 million farmers who migrated to cities, wages are extremely low. The average wage for an unskilled worker in 2004 was between $58 and $74 a month.(3) Many of these workers lacked health insurance, job security, and power to change working conditions. Chinese factory laborers are paid 64 cents an hour, including wages and social insurance. This average includes more than 70 million suburban and rural factory workers are paid 45 cents per hour. In contrast, United States factory workers earn $21.11 per hour.(4)
However, in recent years this worker surplus has turned into a shortage. China's one-child policy has reduced the number of able employees. Tax reductions and other incentives have made agriculture more profitable, reducing the number of farmers migrating from rural areas. Young people are opting for education rather than factory work, minimizing the work force. Other workers aren't qualified for the jobs that need to be filled. One province claims to have 2.5 million vacant jobs.(5)
This surplus allows workers to demand higher wages and better conditions. Minimum wages are increasing by 10% every year. These rising production costs have contributed to inflation, but the inflation (at 2-3%) is small in comparison to the increased incomes.(6) One business, in response to increased labor costs, has chosed to decrease energy costs. St. Louis-based Emerson has built a solar-powered office and introduced recycling.(7) Workers are receiving increased benefits and employers are forced to offer more flexible hours. The majority of workers in China are seeing an increase in wages, and with it, an increase in their standard of living.
Although wages are higher, they are too low to live comfortably. The often demonstrations and strikes in China cause citizens to worry about their country's political and economic stability. Some believe an increase in workers' wages would increase purchasing power and consumption, creating jobs for other Chinese citizens. China should reduce dependency on its exports, and instead look to their own people for revenue, encouraging economic growth with a stronger domestic market.
The government has suggested tax relief as a solution to rural poverty. The plan is to subsidize farmers' costs to grow food in high-demand or build resevoirs.(8)
However, if wages continue to increase, businesses may look to other countries for cheap sources of labor. Some firms are considering relocating. This would cause a sharp decline in available jobs in China, sending many citizens back into poverty. If prices continue to rise, these costs may be passed onto the consumer. Because China depends so heavily on exports, this could cause worldwide cost-push inflation.
One of the places businesses are considering relocating to is India.
INDIA'S LABOR HISTORY
In 1948, "The Committee on Fair Wage" was set up to provide guidelines for wage structures in India. The report that this committee formulated was a major landmark in wage policy in India, for it set out rules pertaining to the concepts of living wage, minimum wage and fair wage. This Act secured equal rights for both men and women. It also stated that the government must strive to provide a “living wage” for all citizens. In Article 39 of this Act it says, “The State shall, in particular, direct its policy towards securing (a) that the citizen, men and women equally shall have the right to an adequate livelihood and (b) that there is equal pay for equal work for both men and women. Furthermore, Article 43 says, “The State shall endeavor, by suitable legislation or economic organisation or in any other way, to give all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure, and social and cultural opportunities” (1). The enactment of this minimum wage policy took place over a few decades. Once is was finally passed, it specifically noted that revisions to details be made as the conditions of the economy and such fluctuate from year to year (2).
In India today, there are different minimum wages for each category of work skill. The lowest rung on this wage ladder holds the “unskilled,” which include cleaners, messengers, waiters, housemaids, shepherds and farm workers. The “semi skilled” category includes carpenters, goldsmiths, electricians and bartenders, while the “skilled” include plumbers, agriculturists, hairdressers, tailors, auto-mechanics, electronic technicians and painters. At the top of this job hierarchy are the “office staff” and the “highly skilled.” These categories consist of store keepers, telephone operators, nurses, accountants and chemists. The minimum wages for the “skilled” are double that of the “unskilled” and those for the “highly skilled” are nearly triple (3). However, many workers do not fit into any of these specific job categories, leaving them without adequate protection.
Even though specific areas of the Minimum Wage Act of 1948 have been updated according to the changing conditions, there have been no “all-encompassing” revisions. The people who suffer the most are those who belong to unorganized work forces. While those who are a part of organized unions have many protections set out for them, those in the unorganized forces have millions of employers, “virtually every small trade, enterprise, sole proprietor or household,” and cannot be accounted for due to varying diversity of location and nature of work. The fact that there are no specific wage requirements for a vast majority of workers has left them unable to keep up with matters such as rising inflation.
There is much debate over whether an increase in the minimum wage will help or hurt those involved. Many economists say that an increase in wage will help out the economy. The poor will be spending more and costs will invariably, adjust. However, other economists say that the minimum wage should be determined by the market itself, meaning that each person’s wage “reflects the ‘value’ placed on it by employers and consumers” (4). They say that a clearly defined minimum wage would not account for the many variations placed on different types of work. While this may be true, India has recognized that a definite floor must be set in order to protect its citizens from being exploited. Therefore, “Any market-based determination of wages can and must happen above the legal floor” (4).
Still, many argue that any increase in the minimum wage will drive labor further underground, and lead to even more corruption. While this may be so, the government needs to fully address this matter. By setting the wages so low, they have continually allowed for exploitation and anyone with decent moral values can see that something must be done about this.
Contrastly, European countries have laws setting relatively high minumum wages. Many of these countries, like Netherlands, Servia, and Ukraine, have minimum wage laws that ensure far less pay than America. However, there are a few countries that have minimum wage laws that ensure more pay for employees like Malta, Ireland, and Poland(1). European countries main form of currency is the Euro, so to compare that to U.S. dollars we must first find the strength of the Euro to the Dollar; it turns out that one Euro is worth about $1.27(2). The minimum wage in various countries in Europe, when converted to U.S. dollars, ranges from $442.77 (in Netherlands) to $22,969.85 (in Malta) per year. The U.S. minimum wage falls somewhere in between at about $13,500.00 per year(1).
The huge difference in minimum wages in European countries may not be so different when you factor in the cost of living. Some cities, like London, are ranked among the highest cities in the world in terms of cost of living according to a Mercer Human Resources Consulting survey(3). After adjusting the minimum wage pay for the cost of living in each country the actual pay is not as radically different than it first appeared to be. In Europe there is a poverty line, like in America, and many countries do not pay employees enough to meet that poverty line. This creates an economic problem for countries that are not paying employees enough to get themselves out of poverty. In that way there is a problem very much like the on in America; no matter how hard or long you work at a minimum wage job, you can not get yourself out of poverty.
In Europe there is another problem that makes the situation even worse, it’s called the ‘working time problem’. A full time working week is considered to be anywhere from 35-40 hours depending on which country a person may be in. However, there is also a cap on how many hours an employee may work in a week; this cap ranges from 43 to 48 hours a week. This not only prevents those individuals that want to work longer hours to improve their income, but it also prevents the employers from reaching maximum productive efficiency. This means that the economy also suffers because the manufacturers are not operating at maximum efficiency. Another reason that the European countries are not operating at maximum efficiency is that because of the socially oriented politics about 1 in 4 employees are not at work at any given time. This is because the politics in these areas allow for annual, maternity, and parental leave as well as part time employment opportunities. Not only does law require these things but, some countries have taken more measures that make it more beneficial to be away on leave than at work. These measures include double holiday pay along with many opportunities for employees to take leave. Therefore, many people find it much easier to take leave as often as possible to get the double holiday pay(4).
So, what should be done about this problem in Europe? The political policies make it hard for business to operate at maximum efficiency since 1 out of 4 employees are not at work at any given time. So it may have to start with political policies; the employee must be given more incentive to work than to take leave so that the employers may operate at maximum efficiency. I think this first step should be taken before raising the minimum wage because Europe has been raising the minimum wage in many countries and it still doesn’t pay employees enough to get out of poverty(5).
A GLOBAL MINUMUM WAGE
Although many countries have national minimum wages, a global or international minimum wage would be a giant feat. For one thing, countries use various types of currency with its own value. To compare the minimum wages of different countries, annual minimum wage incomes are calculated into US dollars. From these estimates, a wide range of annual incomes result: from $29 per year in Kazakhstan to $28,911 per year in Switzerland. (1) Despite the cost of living and national minimum wage differences, many organizations still support the idea of an international minimum wage.
One such organization is Global Exchange. This group sees a need to create both a global minimum and maximum wage. The annual minimum wage would be arbitrarily set at $1000, and the annual maximum wage would be $1 million. (2) Though the values aren’t based on any proven research, the prospect of having both an international minimum and maximum wage is surprising. A minimum yearly wage of $1000 could help developing countries which currently have minimum wages of lesser value while the maximum annual wage of $1 million could limit richer countries from earning too much per capita; yet the consequences of this could be a lack of productivity as citizens know they can only make so much. (3) The overall concept here is to level the playing field, bringing the gap between the rich and poor closer together. Since almost 3 billion people make a living on less than two dollars a day, an annual global minimum wage of $1000 could help a greatnumber of people. (4)
Although the interest in an international minimum wage has increased, the idea of an international living wage is a more popular and controversial subject because it might actually solve the poverty seen in developing countries. Rather than creating a minimum wage in hopes of improving the conditions of the poor, a more preferable solution would be to make that minimum wage a global living wage. This global wage will ensure the workers make enough money to afford basic necessities-food, housing, health care, education, etc. (5)
One area an international living wage could most effectively improve the lives of workers is in the garment industry. The garment factories are located in countries where cheap labor can be found; the labor costs may be as low as .5% of the product’s retail price. (6) These clothing factories may also be referred as sweatshops because of the grueling work done for little pay. Workers in Indonesia work in Nike factories making 10 cents an hour. Likewise, workers in China make only 23 cents an hour working 15 hours a day and 6 days a week. (7) These appalling wages keep the workers in poverty, while those who buy the products benefit from the lower prices. An international living wage could force manufacturers to pay their workers at least enough to acquire the basic requirements of life.
Even though no formal agreements have been made to pass any type of global minimum or living wage, the efforts to improve the situation of the workers in 3rd world countries show the dissatisfaction with the status quo. With an international minimum wage nowhere in sight and a living wage even farther away, the possibility for these wages to come into fruition is very low. In theory, these plans seem perfectly logical, but in reality, many complicated issues stand in the way of transforming standard national wages to an international one.
Footnotes for China- Monica Burns
Footnotes for India- Taryn Fujita
Footnotes for Europe- Kelan Ige
Footnotes for Global minimum wage- Rebecca Jong
(3) http://siteresources.worldbank.org/INTECONEVAL/Resources/MinimumWage NoteJul03v2.pdf