Exploring an International Minimum Wage

I've looked into the concept of a minimum wage, finding many proposals. Some are based on the US minimum wage, or on an average of national minimums. Some are just arbitrarily set without explanation. These proposals often quintuple the salary of workers in poor countries.

This is a more conservative proposal based on a combination macroeconomic/commodity approach. Also, an explanation of the economic purpose of minimum wages.

Some economists argue that minimum wages simply reduce the labor markets. The theory is that if you can afford to pay $1/hour for employees, and someone raises the minimum wage to $2/hour, then you will simply hire half as many. This is true only if there are no declared profits for business owners and shareholders. The assumption of this theory is that the employers are paying the maximum for employees.

In reality, business owners pay workers the least that they can afford. A labor market is the opposite of a commodity market, with economic pressures to lower salary. A business owner paying $1/hour to workers might be keeping $2/hour/worker in profits. He would be able to raise wages to a $2/hour minimum, still keeping $1/hour/worker for himself.

When economic pressures cause income reductions, people cannot afford to buy as many things. When they stop buying things, companies reduce production and, in turn, lower wages or fire people. People with lowered wages cannot afford to invest in education. These sorts of economic vortexes have occurred throughout history, generating predictable cycles of economic depressions.

A combination of unemployment insurance, minimum wages, and social programs represent a stabilizing factor in an economy. It serves as a stop-loss strategy that prevents cyclical degradation. Countries with these systems tend to have slower, but steadier growth.

In short, minimum-wage, full-employment economies work.

This proposal involves several factors of establishing minimums.

  1. Set a macroeconomic global minimum of 25% of the global average yearly income and a 40-hour work week. Currently the global average income is about $5300. That would set the global minimum wage to about $0.69/hour. Less than 5% of the world would be affected by this very conservative minimum.
  2. In addition to global macroeconomic minimums, set a local minimum wage using a PPP index. We should add many basic commodities to the index. For example, 5 cubic meters of clean water per hour. This is about $3.50 in the U.S., $7.50 in Germany and as low as $1/hour in many nations. In some countries, this would be near zero, such as in Norway. However these countries would fall back on the other minimums.
  3. Finally, a third minimum would be the local, national minimum set to 25% of the average national income, based on 48x40 hour work-weeks. In the U.S. this would be $5 per hour.
  4. Phase in the minimum. Start the minimum wage in each country at the average wage of the poorest 20% of the population of that country and raise it by 5% each year until it reaches the global minimum wage.
  5. Raise the minimums. Over time, the minimums can be raised as education improves and labor becomes more evenly distributed due to technological advances.
  6. Enforce the minimums. One method of enforcement would be to tax imports from countries that fail to agree to the minimums, and then spend all the money on education and reform of the working poor in the same country.

If there are multiple minimum wages in effect, the highest is always used. For example, these were designed to be well below most national minimum wages.

The purpose of such an international law is to prevent slave labor and tyrannical exploitation of people by monopolies. It is not to create some sort of unrealistic, utopian world where nobody has to work for a living. At least, not yet.