Labor Day Reflections on the Minimum Wages of the World (and other considerations)

Presenting “Leibniz and the Behavioral Economic Approach to Confusing a Law Review Editor" at the Lighthearted Philosophers’ Society 5th Annual Conference. The paper won the Joseph S. Ellin Memorial Essay Prize for best paper.

Presenting “Leibniz and the Behavioral Economic Approach to Confusing a Law Review Editor” at the Lighthearted Philosophers’ Society 5th Annual Conference. The paper won the Joseph S. Ellin Memorial Essay Prize for best paper.

In celebration of Labor Day, I turned down the invitation for the family barbecue to instead engage in something really fun–create a comparative analysis of minimum wages throughout the World.

This is a very difficult task.

First, the laws establishing minimum wages vary wildly.

In the United States, in accordance with its Commerce Clause authority, Congress has established a national minimum wage of $7.25 per hour.

There are exceptions.

If the worker lives in the U.S. Territory of American Samoa the minimum wage vacillates between $4 and $5.50 depending upon the industry. In the Northern Mariana Islands it is a flat $5.55 until it is incrementally raised to $7.25 in 2018. In the U.S. Virgin Islands, what employers pay is based upon the businesses’ yearly income–allowing firms which make less than $150,000 to pay a lower wage. 

Washington D.C., which is controlled under federal jurisdiction, also gets special treatment–its minimum wage is $9.50 with a statutory increase to $11.50 by 2016. For those who are unfamiliar with D.C. lawmaking, under Article I, Section 8, Clause 17 of the U.S. Constitution as effectuated through the Home Rule Act, Congress can veto any Act of the D.C. City Council. The practical upshot is this: Congress allowed a substantially higher minimum wage for where they spend most of their time than they did for their home states. 

I guess they care more about the financial well-being of D.C. citizens than that of their own constituents.  

Also, as anyone who has ever been to a restaurant in the United States knows, tip-based jobs enjoy a considerably lower statutory minimum wage ($2.13) and while if they ultimately make less than $7.25 per hour including tips, the law requires businesses to make up the difference–in practice, many will not.

Far lesser known is a provision of the Fair Minimum Wage Act of 2007, which allows employers to pay youth (anyone under 20) only $4.25 for their first 90 days of labor. 

So much for Billy raking in the big bucks of “adult” minimum wage during his first summer job.    

This is where it can get fun.

Each state also has the option of insisting upon a higher minimum wage.

Three out four of Arizona’s U.S. House delegation voted “no” to raising the federal minimum wage to $7.25, explaining that it would kill job growth in Arizona. At the same time, the Arizona Legislature raised the Arizona minimum wage to $7.90!

Similarly, while both Republican House members from Nevada voted “no;” Nevada itself voted “yes,” to have a minimum wage one dollar higher than whatever the federal minimum wage might be.

Connecticut, meanwhile, was the first state, now among many, to heed President Obama’s call and enact a $10.10 minimum wage effective 2017.

*** An aside ***

Me making a strange face with the former Singapore Trade Minister (and one of my World Trade Law professors) at NYU@NUS

Me making a strange face with the former Singapore Trade Minister (and one of my World Trade Law professors) at NYU@NUS

Many argue that minimum wages hinder economic growth.

The political argument (as opposed to the academic and philosophical ones which allow for nuance, case studies, and Game Theory), which ignores that almost all firms try to grow and expand at all times, is that employers, already experiencing a recession, will be less likely to hire more workers or keep the ones they have due to added expense. 

The counter-political argument, which involves screaming and crying but I believe to be correct (because it’s founded upon principles which have been empirically verified through multiple cross-cultural multivariable longitudinal studies on the interplay between modest and gradual minimum wage increases and their interrelating effect, incorporating the “Lipsey-Lancaster Theory of the Second Best” in the results, on employment rates, inflation, the Gini index, and the relevant populations’ subjective perceptions of prosperity, fairness, and standard of living–endearingly called “the Happiness index”) is this: “No it doesn’t you heartless jerk.”

For more compelling arguments favoring a raise in the minimum wage, you can visit the FAQ page of the U.S. Labor Department here.

For the argument that there would be a slight decrease in employment, (0.3%) accompanied by a reduction in the U.S. Gini index score (the Gini index measures the disparity between the rich and poor) you can visit the nonpartisan Congressional Budget Office’s analysis here.

Rather than risk loosing readers by directly making an argument through mathematical and law and economics formulas, I will instead recite a more entertaining and sardonic, though intellectually dishonest, argument:

Let’s assume that minimum wages hinder economic growth:

Perhaps that is why the following states with no statutory minimum wages are beacons of industrial commerce and sophisticated opulence: Alabama, Mississippi, Nebraska, South Carolina, and Tennessee.

Meanwhile, states with higher minimum wages are depressed jobless gutters without a hint of glamour: California (it’s GDP is higher than that of the whole of India), Connecticut (it has the highest per capita personal income in the country), Hawaii, Maryland, Massachusetts, Oregon, Vermont, and Washington.

Even Florida voters took a break from passing evermore permissive gun laws to enact a higher minimum wage.

(The reason the above argument through cherry-picked examples meant to appeal to your emotions and humor is intellectually dishonest is because correlation does not prove causation. A fun way to remember this logical fallacy is through its seminal study involving bars and churches: It turns out that the more churches a city will have, the more bars it will also have. Does religion foster drinking? Does drinking drive one to seek God? No, there is a third variable–the greater the population of a city, the more bars and churches it will have. Now, that I have explained this heuristic fully, for the sake of glib entertainment, we shall completely ignore it in the future.)  

*** End of Aside ***

Of course there is one industry that exempts itself entirely from the minimum wage–politics. “Volunteers” are not merely asked to donate their labor for free, but substantial financial contributions are also encouraged.

Making it more complicated, cities can also get into the action. Seattle just decided to raise their minimum wage to $15 per hour by 2008. Studies from Berkeley economists conclude that there will be no impact at all on employment rates, though prices when dining out might increase by seven percent.

(So for every hour worked, a Seattle laborer can afford one “short” coffee.)

Though that won’t be enough to make a Luxembourger jealous.

Luxembourg currently uses a tiered system which culminates with the highest national minimum wage in the world–$17.48 per hour for skilled workers ($14.56 for unskilled workers) above the age 19. The wage plummets to a mere $10.92 if you are a 15 year-old unskilled worker.

In other words: a person in Alabama who works 40 hours per week, every week, with no vacation or getting sick, at minimum wage, gets $15,080 whatever their age or skill-level. In Luxembourg, the floor for a pimply child who can’t read is $22,685.04 annually.

If you are at least twenty and have a degree, that amount swells above $30,000 a year–double that of an American and almost matching the per capita personal income of all workers in Idaho.

Expressed through words rather than statistics, this means that those considered the poorest of the poor adult skilled workers of a tiny country in north Europe make near the same as the average person in Idaho whatever his or her age, knowledge, skills, and ability.

This is the current state of the Luxembourg economy:  According to the World Bank, the 2013 GDP per capita for Luxembourgers is $111,162.  

For the United States it is less than half that at $53,143.

This is one of many internet sites you can use to find your next job in Luxembourg .

Luxembourg church(Since this is a “travel law” blog, I’ll quickly note that Luxembourg is wonderful. There is an enchanting steep gorge which protects miles of subterranean and mountainside tunnels–called the Bock Casemates–used during World War II which you can explore virtually alone for hours. The vast National Museum of Military History in Diekirch warehouses dozens upon dozens of tanks and life-sized battle displays. Admission is 5 Euro. Afterward, enjoy a locally brewed “Diekirch beer” (one of the world’s best and most rarely exported pilsners) at the rustic village’s best Restaurant Lounge Bar Bel Mondo. Finally, if you want to try to meet the flashy but friendly Cuban-born Grand Duchess, make the rounds at the very few Cuban-themed bars in Luxembourg City–she used to hang out frequently at “Cuba Libre,” across the cobblestone square from her palace, but I understand that it has sadly closed since my last visit.)

So far we have assumed that money is worth the same everywhere.

It isn’t.

On average, milk costs about $1 per liter in the United States. That’s a bargain if you live in Honolulu, Hawaii, where the price is nearly twice that; just right if you live in Grand Forks, North Dakota; and downright pricey for Eugene, Oregon where prices are 10% lower. In Los Angles–the nearest city to the dairy condensing plant at Artesia, owned by California Dairies Inc., which provides 43% of California’s milk and 9% of the nation’s milk–a liter costs $1.03.

That’s just in the United States.

Thrifty that I am I have never booked a room in New York City or London for less than $100.  Meanwhile, my rooms in Fez and Marrakech, Morocco were $6 and $4 respectively. I once spent $2 (split with a friend) for a perfectly acceptable air conditioned room in a Bolivian mountain village. I even paid a street vendor there with a coin worth one cent for a small bag of popcorn and got several more coins back in change.

An hour long full body massage is about a $125 on a cruise through the Caribbean, $1 on a remote beach in Bali (preformed as a charity exercise by blind monks), $5 on Koh San Road (a Swedish massage, a few miles away, complete with oils, incense, and ambient music at the splashy Bangkok Mandarin Oriental is also only $90), or $10 in an, anywhere outside of Istanbul, Turkish hammam. 

As the United States looks to see which experiments with minimum wages work and don’t it has plenary of, albeit, very diversely circumstanced, case studies to review.

To effectively divine any meaning from sundry minimum wages you must consider the comparative purchasing power of what the foreign wage offers to the laborer where he lives. This is done through a purchasing power parity analysis.

So, when Bloomberg News says “real hourly wage” it does not refer to the statutory rate, but the rate’s purchasing power parity as converted into U.S. dollars. So, after that calculation, in 2013, the countries with the ten highest minimum hourly wages are (though not all sources agree ): Luxembourg ($10.66), France ($10.60), Australia ($10.21), Belgium ($9.97), the Netherlands ($9.48), Ireland ($9.01), New Zealand ($8.62), the United Kingdom ($7.88), Canada ($7.85), and sneaking in at number ten, the United States ($7.11).

(To be thorough, the numbers above are lower or higher than the actual statutory wages due to a higher or lower cost of living in those countries compared with that of the United States.)

Those results might not be totally horrible excepting two considerations.

Each of those other countries offers free universal health care.

Also, not only does the insured pimply illiterate kid from Luxembourg get paid 8K more than our minimum wage workers–he also receives five weeks of paid vacation each year.

Most industrialized countries (and also most non-industrial countries) have minimum wage statutes which also require a minimum number of paid days off.

There is (arguably) a systemic economic benefit from this. Chronically unemployed workers are able to obtain temporary work when Holger takes that long-planned six week vacation to Miami! Some firms also hire additional permanent personnel to accommodate its known needs when employees go on holiday.

In Luxembourg, it is a flat 25 days minimum whoever you are. Many other countries have a graduated scale based upon the number of days you work in a week, your occupational sector or status, your age or your seniority with a particular firm or your years working generally–or a confounding multiplicity of those factors requiring the use of tax forms, a certified medium, and a graphing calculator to understand.

The Bahamas gives you 14 days after your first year and 21 days after your fifth. The Dominican Republic is more stingy by offering only 20 vacation days after your fifth year of employment. Argentina’s schedule is based upon seniority going from 2 weeks to 5 weeks after your twentieth working year.

I heard a rumor that someone has even found work in Venezuela. I’m not sure if I believe it, but if it is true, he or she is legally entitled to a minimum of 20 days off a year with an extra day for each year of work–up to 30 days. (Though good luck enforcing it.)

The minimum for the European Union is four weeks, but many of the member states laugh at such a miserly holiday schedule. Finland and France each require 5 weeks while England and Hungary max out at 28 days and 37 days respectively. Hungary’s tabulation is based upon workers’ ages and the number of children they have.

In Canada, they control it at the provincial level. Most provinces require 10 paid days off a year while wanderlust Saskatchewanians insist on having 15.

The Mediterranean island of Malta does it by the hour–192.

In some countries it matters what sector you work in. The U.S. encourages collegiate hard-science majors with scholarships and debt restructurings–Estonia (which now ranks 9th in the world for science education) requires all of its scientists to get 52 vacation days a year. In Switzerland, public sector employees get an additional week beyond those dedicated to private enterprise.

At least two countries emphasize its value of manual labor. In Australia, lower-paid service industry jobs are typically rewarded with 5 paid weeks of vacation while white-collar workers get 4 weeks. In Singapore–which otherwise has no minimum wage–grants its laborers (excepting “domestic workers”) 7 to 14 days but there are 0 guarantied days for management and executives.

(I imagine that they give themselves the time they need though).

Vietnam and Thailand mandate that sweatshop workers–yes, sweatshop workers–get respectively 10 days and 6 days of paid leave each year.

The United States guarantees its workers zero.

Our minimum wages are miserly. We must purchase our own medical insurance. Those who work physically hardest–the career fast food and box store employee, sweaty landscapers and agricultural workers–will likely never get a paid day off.

America, happy Labor Day.

The Thai government mandates that all workers receive at least six paid vacation day per year. The U.S. government doesn't require any.

The Thai government mandates that all workers receive at least six paid vacation day per year. The U.S. government doesn’t require any.

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