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Minimum Wage Isn’t the Best Solution

by Davin Ng

This is an addendum to my previous post on “Income Inequality & How to Not Fix It”.

There has been a lot of hype in recent months about a minimum wage policy, because in the most straightforward sense it seems like a really great idea: force all those evil corporations and businesses to stop exploiting the workers and give them a fair deal that sounds appropriate for the time being. Hurrah.

Source: businessnewsdaily.com

And you know what? It sounds great. S$6.50/hour for part-time, hourly work or S$1,200 full-time salary at a minimum? That is the figure that has been quoted by some opposition politicians and it appears that many Singaporeans are buying into that idea and those numbers.

I consider it my responsibility to behove my fellow citizens to take a good, hard look at the minimum wage policy, consider its history in at least one nation, then think about it again.

The minimum wage law was first enacted in New Zealand in 1894 as a way to stop sweat shops in the manufacturing sector that employed vast numbers of young workers who are paid substandard wages because sweat shop bosses had unfair bargaining power over the workers. But the minimum wage had its greatest impact in Depression-era America when it was enacted on 1933 at US$0.25/hour. Since then it has been in force to this day with US$7.25 as the federal minimum wage.

In the words of one of my respected professors, the minimum wage was enacted so that people could actually live. The intentions behind this policy are truly noble: to provide income equity for the least able members of the workforce. But it does not simply end here – there are greater long-term ramifications than simply naming a fair-sounding amount at any given time.

As we may all be aware, the price of everything, labour included is subject to inflation. Consider this graph depicting the history of the US federal minimum wage in real (actual value adjusted for inflation) and nominal (value at the time) dollars:

Notice how the real value in light blue spikes suddenly at various intervals before sliding down consistently before spiking up again. The spikes indicate when new legislation (like the recent Fair Minimum Wage Act of 2007 that raised it from US$5.15 per hour to US$7.25 per hour) were enacted time and time again to adjust the minimum wage in order to match inflation. While it may seem like perfect common sense to do something like this, legislation isn’t always an exercise in common sense. Legislators may not feel like doing anything about the minimum wage due to external lobbying influences from business leaders, which may explain the lack of regular and timely increases to the nominal increases of the minimum wage.  Also, this sort of legislative arguments, haggling and horse trading over such new minimum wage legislation takes up lots of time.

Also, any attentive observer may point out that the real value of the US federal minimum wage has been consistently sliding downwards since 1980. Simply relying on the minimum wage as a fix-it is not going to solve the greater economic problems out there.

Now let us shift our focus back home, to Singapore. Suppose our Parliament does consider the minimum wage seriously and enacts such a piece of legislation. Can we count on our ruling party, and even opposition MPs to take grassroots concerns seriously? What if they can decide not to raise the minimum wage after 10 years of inflation? That will end up in untold suffering for the least able of our workforce. This is no criticism of the ruling party, or opposition parties, but an expression of suspicion of politicians in general. Politicians are already under enough suspicion in proper democratic nations where they have to fight for their votes in their constituencies, and we live in a country where a substantial number of MP seats go uncontested.

That, dear reader, is only one of a good multitude of reasons why the minimum wage policy is not such a great idea after all. I will not deny or even dare disparage the noble and admirable intentions behind championing such a policy, but sometimes offering a Panadol to a car accident victim is not the best of ideas.

Davin is a student in his mid-20s living with Asperger's Syndrome who
now studies at the Center for American Education.. He aims to major in
political science when he transfers to the States.