My personal opinion concerning Minimum Wage, and an overly-simple but demonstrative analysis why Minimum Wage does no good to people, and one possible alternative.
My believe is:
” 最低工資立法不會令所有人得到最低工資，只會令不值最低工資的人失業。 ”
” Minimum Wage does NOT mean that workers would all get a raise to that Minimum. It looks more likely to mean that workers NOT WORTH that Minimum will BECOME unemployed ”
=== Assumptions ===
We believe that the following assumptions are true for the lower-income groups in HK.
1. The groups of people earning low income are unskilled workers, for example, hygiene workers, street cleaners, etc.
2. Their mobility from the hygiene industry to another industry is low because of skill set constraints.
3. There is no monopoly in those markets, i.e. no single company dominate the hygiene business.
4. The market Rate for each unit of cleaning output is roughly uniform, e.g. if keeping 1000 square feet of area clean is worth X dollars, then keeping 2000 square feet clean would worth 2X dollars.
(We welcome opinions against the assumptions above. Note that by Rate we mean the market rate of each unit of cleaning output, where by Wage refers to the income of a hygiene worker measured in a fixed period of time)
=== Analysis ===
By the above assumptions, the market clearing Rate for hygiene services would be the Rate such that the number of units of cleaning output willing to work at that Rate equals the number of units of cleaning output that employers willing to employ at that Rate.
So, what is the effect of minimum Wage legislation?
1. Minimum wage means the minimum income of a worker. But the assumptions above implied that it is the Rate that matters. So, if a worker is not efficient enough to provide sufficient amount of output to cover the raised Wage, he/she will become unemployed. Therefore, the most unprivileged and inefficient will be shredded from the employable net, but this group is exactly what we wanted to help by the “minimum wage”.
2. Because of the above, the employable amount of labor for hygiene services would be reduced, therefore pushing up the Rate. At this increased Rate, it has two effects working against each other (i) firms will demand less hygiene services, therefore reducing total output of this sector (ii) the increased Rate would attract people coming into this business, but increased supply would push the Rate back to what it was.
3. As could be guessed from above, a minimum wage policy effectively imposes a ‘contractionary’ effect on output of sectors that needed boosting or expansion.
Conclusion? Minimum wage would simply work against its ‘noble’ purpose of helping the low income groups of people. It would reduce total output of those sectors instead. To put it in an overly simple but demonstrative way, Minimum Wage does NOT mean that workers would all get a raise to that Minimum. It looks more likely to mean that workers NOT WORTH that Minimum will BECOME unemployed.
=== Alternative ? ===
We don’t think the vision of the government and all the political parties is that narrow. To meet the ends of sustaining output while increasing the employability of low income groups, why don’t we look into a Tax Credit system?
A tax credit system is simple, that it subsidizes people falling under a certain income level (negative income tax). For example, if a person earns X per month and X is less than HK$6000, then the government subsidizes (6000-X) * 0.8.
A tax credit system would have these positive benefits, taking the hygiene sector as example again.
1. It shifts the supply curve of hygiene labor to the right because an employee, after adding the tax credit, would think about working at a lower net payment by the employer.
2. The shift of the supply curve to the right would reduce the Rate as paid by employers. At this reduced Rate, the demand for hygiene services would increase. This would increase total output of the hygiene sector, more people get employed.
3. Instead of shredding off the most unprivileged as in the “minimum wage”, a tax credit system would increase the employability of the under-privileged.
4. In contrary to the ‘contractionary’ effect of minimum wage on low income sectors, a tax credit system has expansionary effect on those such sectors.
In short, if we want to help the under-privileged, we need to get them employed. Only when they continue to have jobs could they learn new skills and progress to higher productivity.
Sole reference: www.wikipedia.com 