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Minimum Wage
- Falah Ahmad
- Apr 14
- 2 min read
Updated: Apr 19
What It Is and How It Works
The minimum wage is a regulation that guarantees a level of labor income that employers are obliged to pay their employees. This figure is always expressed in the national currency, and may be indicated in terms of hourly, weekly, monthly or annual wages. Currently 90% of ILO countries have such a regulation, although its updating and coverage varies from case to case.
The Policy Impact
The first effect of the application (or increase) of a minimum wage is the immediate increase in the income of all those formal labor contracts that were below that value. However, it also has a secondary effect on wages that were above the threshold, since when the floor is raised for the latter, what usually happens is that it pushes everyone up (otherwise, unskilled workers would end up earning the same as workers with medium or higher qualifications).
Then, it must be taken into account that the increase in wages implies an increase in the costs of the capitalists that can lead to an increase in prices, reversing part of the initial effect (remember the difference between nominal wage increases and real wage increases).
The different branches and sectors can also negotiate a minimum wage for their own item, but it can never be below that fixed by law.
Stakeholders and Political Implications
Those most affected by the evolution of the minimum wage are lower-skilled workers and their respective employers. Although informal workers are not affected by this measure, in some cases they may also be favored by the increases.
Some Debates Among Economists
If the labor market were a market like any other, one could claim that the free play between supply and demand results in the most efficient point of marketed quantities of labor and its corresponding remuneration. This is the argument of many economists of the neoclassical school to oppose the minimum wage since it would end up leaving unemployed people who would be willing to work for a wage that employers would be willing to pay (but less than the minimum wage). However, from the opposite side, many other models show that this is a particular market. To begin with, the roles are reversed: here the suppliers are no longer firms but individuals, and the demanders are no longer households but companies. Moreover, in general, there are associations of both employees and employers who unite to defend their interests together, which could lead us to speak of a concentrated market. Nor is it comparable to other markets such as tomatoes, or haircuts, because could you imagine a week without tomatoes, or with hairdressers closed? Now imagine a society without work. At the same time, it is usually an asymmetric relationship, where the suppliers in many cases may have no alternative (but to starve) to sell their product (labor force), while the consumers (employers) have money and time on their side.
Real-World Examples
Mexico implements a significant increase to minimum wage
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