Economics of Human Resources: Why a Minimum Wage is Needed for Employees

What is a Minimum Wage and Why is it so Contentious?

Many of us would be familiar with the term Minimum Wage which is often argued as being necessary by labor union activists and worker federations.

However, how many of us would know that this concept of a Minimum Wage is highly contentious not only in the United States but also across the world mainly because of the charged debate that takes around it whenever it is mentioned.

The question as to why a Minimum Wage is required often leads employers to point to the already existing benefits that they have been giving their employees whereas the latter and their representatives argue that they are being exploited by their employers who do not pay them the mandated wages leave alone minimum wage.

Before proceeding further, we need to first define the term to achieve some sort of clarity. A Minimum Wage simply is the minimum compensation that must paid by the employers to their employees for the work done by them.

Further, a minimum wage is guaranteed by law which means that employers face action by the government lest they fail to pay the minimum wage.

The Reality of a Minimum Wage is Complex

While on paper, this is a fairly innocuous and simple proposition wherein the government after consultations and discussions with the corporate and labor union representatives, in reality, there are several dimensions to it which are again part of the same discussions.

For instance, it is common in the United States for corporates to argue that the Minimum Wage must be less than $15 an hour since the cost of living and the associated social security benefits as well as other perks offered by the employers such as 401(k) plans factor in the needed monetary incentives and hence, there is no reason for them to accept a higher minimum wage.

On the other hand, the labor unions argue that despite all these benefits, a minimum wage at or above $15 an hour is the basic requirement since most corporates do not pay additional benefits especially to the employees in the lower end of the hierarchy.

Indeed, the minimum wage become contentious whenever the discussion turns to these employees since they are the ones who are affected the most due to the changing rules and regulations governing the minimum wage.

The other reasons why the determination of the minimum wage is so controversial is that it is widely seen by the corporates as a lightning rod for further union bargaining.

The Example of Walmart as a Reason for the Minimum Wage

Having said that, in the fairness towards the workers, it must be kept in mind that when the CEOs or the Chief Executive Officers are paid Millions in salaries and perks, it is only moral for them to spread the benefits down the hierarchy and especially at the bottom rungs as after all, it is the rank and file employees who often keep the show running in most corporations.

Indeed, as the case of Walmart indicates, the CEO is paid nearly 150 times the lowest paid worker and hence, it is widely seen as being exploitative of the workers wherein the benefits accrue to the top and not to the middle and the bottom.

Moreover, a minimum wage impacts temporary and part time workers more than the others as it is the only compensation that is paid to them since they are not eligible for other benefits. Indeed, among the most compelling cases for a minimum wage, nothing can be a better debating point than the wages paid to the temps and the part time workers.

How does a Minimum Wage Work for the Gig Economy?

In recent years, with the emergence of the Gig Economy, there has been renewed focus on the minimum wage that is paid to freelancers, Uber drivers, Lyft workers, and other associated part timers.

As these workers often fall into a grey area between the regular and salaried class of employees and the part timers in brick and mortar companies, the determination of the minimum wage becomes more complex and contentious.

What more, the Federal Government has not yet stepped into this debate since worldwide and in the US in particular, there is not yet a consensus on how to classify the Gig Economy workers.

Having said that, it is also the case that this should not be an excuse for the freelancers to be exploited and this is the reason why there are many lawsuits as well as lobbying efforts directed towards ensuring the Gig Economy be regulated in the same manner as the broader economy. Indeed, in recent cases in the United Kingdom and Australia, judges have been ruling for providing a minimum wage for the freelancers as well and some experts conclude that it is a matter of time before it becomes law in the West.

The Case for Minimum Wage

Thus, as can be seen there are compelling arguments for the minimum wage and given the expected resistance from the employers, there are many union representatives worldwide who are pushing back against this. Of course, a minimum wage set too low can harm their prospects and hence, there is a key role for governments to seize the initiative and ensure that the principles of social justice are followed.

Lastly, in the Indian context, some of these debates do not matter due to the presence of a large informal economy that is neither regulated nor monitored and hence, it is our view that both the formal and the informal economies must be brought under the ambit of a legally mandated minimum wage.

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Economics of Human Resources