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Feb 13, 2010
Why minimum wage system won't work
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NOW and again, there are calls to set a minimum wage, which will not solve anything.
Businesses will likely transfer any increase in wages to the consumer via higher prices of products. This in turn will lead to another round of higher minimum wages. Forced higher wages all round will lead to increased liquidity and inflationary pressure on prices.
One of the ideas behind the minimum wage is to ensure that the minimum income is higher than welfare benefits, or other assistance, so as to wean people off welfare dependency. But large private sector industries must answer to shareholders with hefty profits and pay bonuses to top executives.
How will a minimum wage system work around this? It will be manipulated to hire fewer people so a company's wage costs do not rise. And it will mean inflated prices for everyone.
Perhaps we should consider the idea of a fair wage. That would mean looking at new ways to start businesses with government support as well. This can help ensure that people earn enough and the earnings are distributed in a fair manner.
This would involve paradigm-changing approaches such as:
Collective ownership of a business where all who work in it are shareholders; the Government could have a stake too.
Apart from regular wages, a system of profit sharing is set up for all who work in the business.
There should be no astronomical wages for anyone, and reasonable wages should depend on the nature of the job performed. Perhaps a higher ratio of profits can be given to those whose functions ensure high-end aspects of the profitability and sustainability of the business.
Apart from regular Central Provident Fund contributions and the like, a certain amount should be retained to be reinvested in the firm and set aside for additional health care, education and welfare benefits. This also prevents excess liquidity from flooding the economy.
This is just a set of general ideas that need to be extrapolated, improved and tweaked where necessary. But the old thinking that economic issues can be solved with the same system of stock market swings, inequitable incomes for a handful, and sudden unemployment due to so-called 'market forces' will not get us anywhere.
Sanjay Perera
Why minimum wage system won't work
<!-- by line --><!-- end by line -->
<!-- end left side bar --><!-- story content : start -->
NOW and again, there are calls to set a minimum wage, which will not solve anything.
Businesses will likely transfer any increase in wages to the consumer via higher prices of products. This in turn will lead to another round of higher minimum wages. Forced higher wages all round will lead to increased liquidity and inflationary pressure on prices.
One of the ideas behind the minimum wage is to ensure that the minimum income is higher than welfare benefits, or other assistance, so as to wean people off welfare dependency. But large private sector industries must answer to shareholders with hefty profits and pay bonuses to top executives.
How will a minimum wage system work around this? It will be manipulated to hire fewer people so a company's wage costs do not rise. And it will mean inflated prices for everyone.
Perhaps we should consider the idea of a fair wage. That would mean looking at new ways to start businesses with government support as well. This can help ensure that people earn enough and the earnings are distributed in a fair manner.
This would involve paradigm-changing approaches such as:
Collective ownership of a business where all who work in it are shareholders; the Government could have a stake too.
Apart from regular wages, a system of profit sharing is set up for all who work in the business.
There should be no astronomical wages for anyone, and reasonable wages should depend on the nature of the job performed. Perhaps a higher ratio of profits can be given to those whose functions ensure high-end aspects of the profitability and sustainability of the business.
Apart from regular Central Provident Fund contributions and the like, a certain amount should be retained to be reinvested in the firm and set aside for additional health care, education and welfare benefits. This also prevents excess liquidity from flooding the economy.
This is just a set of general ideas that need to be extrapolated, improved and tweaked where necessary. But the old thinking that economic issues can be solved with the same system of stock market swings, inequitable incomes for a handful, and sudden unemployment due to so-called 'market forces' will not get us anywhere.
Sanjay Perera
