Why Governments Choose to Implement a Minimum Wage

Implementing a minimum wage is a crucial step in ensuring that all employees receive fair compensation for their labor. The primary goal of a minimum wage is to ensure that workers can sustain a basic standard of living. This policy ensures that no one should be left behind in terms of economic stability, which is particularly vital in contemporary economies.

Determining a Fair and Reasonable Wage

The concept of a minimum wage is deeply rooted in the principle that all employees should earn a wage that is fair and reasonable. This includes taking into consideration the true cost of living. For instance, if rent in a particular area is $1,000 per week, this figure must be factored into determining the minimum wage. The wage should be set at a level that allows an employee to afford the basic necessities of life.

Key components that should be included in the minimum wage calculation are:

Basic living expenses such as rent, utilities, and groceries Transportation costs, including owning a second-hand car Entertainment, gas, and savings for future needs Purchase of school books, telephones, and other essential items

The objective is to ensure that workers do not end up living in impoverished conditions, such as shanties or on park benches. Instead, a fair wage should prevent the creation of an underclass of individuals struggling to meet their basic needs.

Setting a Reasonable National Minimum Wage

Setting a national minimum wage may appear straightforward, but it involves a complex calculation. In the United States, for example, a wage of $15 per hour may seem inadequate for a standard of living in cities like New York, where the cost of living is high. Conversely, in states like Nevada, where the cost of living is comparatively lower, a wage of $15 per hour may be more feasible.

To address the varying cost of living, a blended approach can be adopted. This involves setting a national minimum wage while also accounting for state-specific adjustments. For instance:

A national minimum wage of $40 New York, known for its high cost of living, may have a state-specific loading of $10 Nevada, with a lower cost of living, could have a loading of $2

This system ensures that the minimum wage is adjusted to meet the unique needs of each state, providing a more accurate representation of a fair and reasonable wage based on the local cost of living.

Economic Considerations and Challenges

While raising the minimum wage can provide significant benefits, such as improving the standard of living, there are economic challenges to consider. A sudden and dramatic increase in the wage, such as jumping from $1.99 to $45, would likely have undesirable economic impacts. Instead, the approach should be gradual and sustainable.

A feasible approach could involve an annual wage increase, with the goal of achieving fair and equitable wages within a decade. This gradual increase would help businesses adjust to the higher wages while maintaining the financial stability of the labor market.

By gradually raising the minimum wage, we can ensure a better standard of living for all employees. This approach may result in some bankruptcies or business contractions, but these should not come at the expense of fairness and equity for the most disadvantaged workers. In an Australian and American environment, this can be achieved through a national minimum wage, supplemented by state-specific loadings.

Finally, it is crucial to maintain an annual review of the national minimum wage, based on the cost of living. This will ensure that the minimum wage remains relevant and effective over time.

Setting a fair and reasonable minimum wage is not just an economic necessity; it is a social imperative. By ensuring that all workers earn a wage that allows them to live with dignity, we can foster a more inclusive and equitable society.