Morosoph's Journal: International Minimum Wage

This article was posted in its first incarnation here.

The world would be better off with a minimum wage adjusted for Purchasing Power Parity.

Racking the wage up for the sake of equality should not be an aim here. Establishing a minimum, avoiding a contest to the bottom is enough. Poverty is the major problem facing the world, not "inequality".

"Equality" will ruin us all, for the concept has such emotional appeal as to short-circuit thinking. If we say that minimum wages should be a percentage of the average wage, say, then governments will have to refuse investments that enrich the rich too much, even if they help to eliminate poverty. This is not sane.

The market will eventually seek greater equality across nations. Initially, money seeking the world's poorest means that in rich countries, the divide gets worse (the poor get competition from people who are still poorer), and the same also holds for poor countries (consider the new factory owners), yet global inequality goes down: the world's poorest get richer, and poor nations get to be richer, too. There is a means to greater global equality even though it gets worse in each nation.

Why a minimum wage, then? Simple. The market at the low end is not very suseptable to price if all prices move together. You'd still consume almost as much bread at almost twice the price, yet a lot more flows to poor families and to poor nations. Even if six families find an income where seven did before, their country is more able to provide education and the other necessities of life: in short, they get out of poverty faster.

The most obvious argument against a minimum wage is short-termist and is blind. Immediate slightly greater employment will not solve poverty, and will leave people roughly as they are in the next generation. A minimum wage would create a greater expectation of (aggregated) income, thus greater investment in any case, so that employment might even go up.

Update (30th June, 2007): There's now a long thread on Technocrat about this idea, with a notable refinement that the minimum could be restricted to international trade, and therefore head off the argument regarding the effect of the minimum on jobs.

Also, private law is likely to be sufficient for enforcement, since workers and competitors both have an interest in the minimum being upheld. Such contrivances as wage boards are unnecessary.

also

[SolemnDragon]

when people aren't forced to spend 90% of their time looking for edible roots and twigs to try to fend off starvation... they work better, and major profitability ensues. There are advantages to feeding the world's poorest that seem to get overlooked by everyone really in a position to help feed them.

Ripple-up

[Morosoph]

This is all too true. There is a problem 'though: the reverse of the trickle-down effect occurs: that is you get a "ripple-up" effect from the poorest to the less poor... and this means that as long as the seriously poor are around, there is a "wage sink", that is the employer need only pay enough for basic short-term health (ignoring medical needs). Read Adam Smith for more on this.

Employers don't want the base to increase, yet they will not lose that much if it increases twofold (say); the extra co