The International Experience - Minimum wages
Description
Most countries (or at least those that New Zealand would see as appropriate comparators to itself) have some kind of minimum wage law that sets the 'wage floor'.
Eighteen of the 25 European Union (EU) member states have statutory minimum wage laws in compliance with the European Union (EU) Directive[1]. In January 2004 the monthly rate varied from €121 (Latvia) to €1403 (Luxembourg).[2] The USA equivalent was € 727. Applying a common unit called the Purchasing Power Standard (PPS)[3] markedly reduces the differences in the minimum wage levels between the countries. Seven EU countries have a greater PPS than the USA.
The proportion of full-time employees earning the minimum wage varies considerably between the countries and is usually higher for females.
EU countries which do not have minimum wage laws include Germany, Austria and Switzerland. In their case it is because almost all employment relationship are covered by collective contracts and deliver minimum rates by industry (see table 3 in Appendix 1.)
The minimum hourly wage in the United Kingdom (UK) is set to rise to £5.25 in October 2006. At time of writing, the minimum wage in Ireland was € 7.65.
There are a variety of mechanisms for setting minimum wages. These are described in table 2 in Appendix 1.
Minimum wage laws in Canada were first introduced in 1918 in the provinces of British Columbia and Manitoba. Every territory now has a minimum wage law, although the rates and the coverage vary.
In 2004, Ontario raised its minimum wage rate for the first time since 1994. In 2006, the general rate was $7.75 and in 2007 it will be raised to $8.00. The rate varies for some categories of workers and interestingly the rate for home workers will be $8.80 in 2007.
From the information available, it appears that the Ontario rate is at the high end of the continuum of rates. For example, the 2007 rate in New Brunswick will be $6.60, Manitoba (2005) $7.25, Newfoundland and Labrador (2006) $6.75 an hour. Nova Scotia $7.15 (2006).
Like Ontario, the federal minimum wage in the USA has not been adjusted since the mid 1990's and there appear to be no plans to do so. Attempts to raise the federal minimum wage have not been successful.
The federal minimum wage in the USA has fallen 38 percent from its peak of $8.46 in 1968 (in 2003 dollars). In 1968 an individual working full time for the entire year at the minimum wage had earnings 20 percent above the poverty line for a family of three. In 2003 a similar worker earning the federal minimum wage $5.15 - fell 27 percent below the three person poverty line - itself considered by many experts to be an inadequate measure of true poverty.
During his presidency, Bill Clinton gave states the power to set their minimum wages above the federal level. At the time of writing, 18 states had done so. Some government entities, such as counties and cities, observe minimum wages that are higher than the state as a whole.
Impact
None of the literature examined claimed that the minimum wage provided an adequate living wage, especially for families with children.
The inadequacy of the minimum wage in the USA has prompted two other significant interventions in setting wage floors: Prevailing Wages and Living Wage Ordinances.
Possible relevance to New Zealand
New Zealand has minimum wage laws. The adult rate is currently $10.25. This means that a full time worker on the minimum wage will earn $410 a week before tax or $21,320 pa. It may be that many of the jobs that attract the minimum wage are not full time but are precarious in that working hours may be inadequate or unpredictable - particularly in the service and hospitality industries. The New Zealand Council of Trade Unions is currently campaigning to raise the adult minimum wage to $12 an hour[4].
It is doubtful that anyone in New Zealand would consider the minimum wage adequate particularly for a family that included children.
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[1] See Appendix 1 for tables on comparative EU rates and setting mechanisms in nationally set rates and bargained rates
[2] Paternoster, Anne. (2004). Eurostat Report - Minimum Wages EU Member States, Candidate Countries and the US 2004. European Communities.
[3] Ibid. This is a way of comparing minimum wages after removing the effect of price level differences by applying Purchasing Power Parities (PPPs) for households’ final consumption expenditure. PPPs convert the minimum wage expressed in national currencies into an artificial common unit that is called Purchasing Power Standard (PPS).
[4] The Government’s Confidence and Supply Agreement with NZ First and the Co-operation Agreement with the Green Party state that the Government will: ‘continue the practice of annually increasing the minimum wage, with a view to it being set at $12.00 per hour by the end of 2008 if economic conditions permit.’
