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The US Can Learn Something About Minimum Wage From the Rest of the World

by Alex Leff Mar 27, 2015

Federal minimum wage in the US stands at $7.25 an hour.

It may not sound so low, but it is. If an employee works full time at the current minimum wage, that worker’s annual salary would be about $15,000. That falls below the poverty line for any family of more than one.

Adding insult to injury: The purchasing value of $7.25 today, adjusting for inflation, is actually 30 percent lower than it was four decades ago.

For many, it’s an outrage. Some economists blame such policies for allowing the country’s income gap to widen. Many are tired of waiting for a federal raise and, taking cues from Seattle, are pushing for action on a state level.

Others think forcing up wages is Big Government tinkering where it need not. And won’t a company just pick up and relocate to a place where labor is cheaper?

It turns out many other countries also have serious issues with minimum wage. They’ve tried all kinds of things: a flat minimum wage, a sliding scale, different scales for different jobs; or even none at all. Germans could soon have a minimum wage for the first time in their history.

GlobalPost correspondents found some instructive examples from the countries where they live and work. They might offer some lessons for the United States.

1. Thailand: $9.30/day in the city; $7 in rural provinces

In Thailand, cheap labor isn’t as cheap as it used to be. As of this year, even the lowliest jobs in Bangkok pay more than $9 a day. Provincial jobs pay at least $7. That’s a life-altering cash hike for many who toil away as shrimp peelers, garment stitchers and security guards to keep Southeast Asia’s second-largest economy humming. A sweeping minimum wage law that kicked in earlier this year made wages in some provinces soar by nearly 70 percent.

What’s behind the sudden generosity from Thailand’s government? Politics, of course. Among Thailand’s working class — i.e., most of the electorate — wage hikes inspire loyalty at the polls. Populist policies have proven the magic recipe for Thailand’s most successful political network, which is helmed by the powerful Shinawatra family. (The current premier is Yingluck Shinawatra.) They have persevered through an army coup, court-ordered party dissolutions and raucous street protests because, when elections are held, voters demand their return to power.

Thailand’s increased minimum wage is just one part of a larger buffet of populist policies. And while popular in the rice-paddy heartland, these rules are deemed reckless, corrupt and pandering by many well-to-do Thai urbanites. This helps explain the wild scenes that have recently played out in Bangkok: protesters charging through tear gas clouds to seize key government buildings. In appeasing the masses, the ruling party has infuriated a powerful minority convinced it must topple the elected government, install an unelected council and save Thailand from bankruptcy.

— Patrick Winn

2. Mexico: $5/day

America’s huddled masses yearning for more than $7.25 an hour? Understandable, for sure. But consider an unskilled laborer’s plight in Mexico, where the official minimum wage stands at just $5 a day.

That’s $30 a week — allowing one day of rest — or $1,560 a vacation-less year.

Of course, hardly anyone here earns just the minimum. The carpenters, bricklayers, and maids who gather at a park in southern Mexico City often won’t consider a day’s labor for less than $20.

But with the economy growing at barely 1 percent a year, and official unemployment edging up to 5.2 percent and underemployment much higher, this is an employers’ market. Raises are supposed to be pegged at the inflation rate. But government figures show minimum wages adjusted for inflation are today about 30 percent lower than 19 years ago.
The government also posts specific minimum wages by job. Consider a few official daily base salaries: brick mason and baker, $7.50; store cashier, $6.50; bulldozer operator, $8; news reporter, $15.

Let’s just roughly average those wages and divide by an eight-hour work day — most Mexicans work much more than that — and we come up with the princely sum of $1.10 an hour.

Well, you say, people should get an education for better jobs? Absolutely. But college educated professionals earn on average little more than $800 a month, according the government’s National Survey of Professions and Salaries, cited by Mexico’s Excelsior news site. Allowing a two-week vacation per year, that works out to an average of $5 a working hour.

Among the better-paid professions are engineers, earning about $11,000 a year. Teachers rank toward the bottom, taking home just $8,100 annually.

Stuff, especially food, is so much cheaper in Mexico, right? Well, no. A quart of milk in Mexico City costs $1.10. A pound of rice or tomatoes costs $1. A pound of hamburger costs $3.45. A pound of chicken breast costs $3.85.

Try being a family of four trying to live on that making $5 a day.

— Dudley Althaus

3. Germany: None, for now*

For the first time, Germany aims to implement a national minimum wage of $11.50 an hour. That’s thanks to pressure on conservative Chancellor Angela Merkel from her new Social Democratic partners in power. But the jury is still out on the new scheme’s potential impact.

German union workers in fields like the auto industry often earn twice what their US counterparts get in salary and benefits.
But over the past decade or so, labor reforms have helped more low-paying jobs spring up in Europe’s largest economy. Today as many as 1 in 5 Germans ekes out a living at a so-called minijob, where he or she can earn up to $611 a month free of tax.
Economists say these same labor reforms aided Germany’s economic boom and kept unemployment low during the ongoing European crisis, however. And they worry boosting the minimum wage will have a follow-on effect across union jobs, resulting in the loss of millions of jobs to countries such as Poland.

“By the introduction of a minimum wage of 8.50 euros, the wages of the low-paid workers must increase very sharply — in the mean 30 to 40 percent,” said Karl Brenke of the German Institute for Economic Research.

“I think, this is too much. It would be better to start with a lower minimum wage — possibly 7 euros.”

— Jason Overdorf

4. South Korea: $4.66/hour

Economists call the rags-to-riches storyline of South Korea the “Miracle on the Han River,” referring to its leap from the rubble of the Korean War to the world’s 11th largest economy last year.

But underneath the nouveau riche, Gangnam-style glamour, this 25-year-old republic is increasingly anxious about a widening gap between rich and poor. South Koreans carry the world’s highest burden of household debt, contributing to high suicide rates and only exacerbating the problem.

So starting this year, this high-tech democracy is raising its minimum wage to an unimpressive $4.66 per hour.

Why so low? Despite efforts to advance the economy, South Korea continues to derive much of its wealth from low-wage, export-oriented manufacturing in petrochemicals and semiconductors. The market is dominated by a handful of politically connected “chaebol,” or sprawling conglomerates, such as Hyundai and Samsung, which squeeze out smaller businesses. Throw in a sluggish economy, and the mom-and-pop entrepreneurs are having a hard time doling out better wages.

But change is in the air, and popular discontent has prompted the country’s first female president, Park Geun-hye, to put forward a vision she calls “economic democratization.” Among several pledges, the project involves curbing the power of big corporations, raising the minimum wage, and fostering a so-called creative economy no longer dependent on manufacturing.
But many in Seoul are skeptical that the nation can sew up its inequalities. Now 10 months into her presidency, Park has backed away from a handful of curbs on corporate power, although her government has succeeded in raising the minimum wage. Though it’s too early to call “economic democratization” a failure, many in the Korean working class, strained by huge debts, are watching uneasily.

— Geoffrey Cain

5. Israel: $6.50/hour

When you talk to Israelis about minimum wage, the main problem seems to be its absence. The second problem is its inefficacy.
With the unexpected exception of Canada, Israel is the Western economy with the worst rate of minimum wage violations. A recent study found that between 11 and 12 percent of Israeli businesses do not obey the Minimum Wage Law.

As a result, about 1 in 8 Israelis is paid below the legal salary floor, which is not far below America’s federal mininum wage: 23 shekels, or around $6.50 an hour.

Many of those violations are in agriculture and the hospitality industry, but there’s a casual attitude about the law in many sectors, especially where young or foreign or single people work.

For example, restaurant and bar servers are often unpaid by their employers. That’s illegal, but bosses figure the wait staff’s tips meet at least minimum wage. When tips fall short, the employer may throw in a little extra to fill the gap.
This may not sound preposterous to Americans. But unlike US waiters who earn up to 20 percent tips, Israel’s make about 12 percent, when they’re lucky.

This isn’t helping a growing problem. Israel is becoming a notorious offender in income inequality. A recent inequality report by the Organization for Economic Cooperation and Development (OECD) gave Israel a failing grade, showing that it lags only behind Chile, Mexico, Turkey, and the United States in terms of the gap between high and low earners.

Sami Peretz, the editor of economic daily The Marker, said the challenge Israel faces is “how to reduce the income gap and provide a decent minimum wage.”

— Noga Tarnopolsky

6. Peru: $1.50/hour

At what point does a minimum wage become meaningless? That’s a question Peruvians are asking — and not because their earnings floor is so low that it’s actually less than a quarter of the average income.

The big problem is the country’s huge informal economy — estimated at half of gross domestic product and 60 percent of all hours worked — where the government’s labor rules don’t apply. That means the minimum wage is largely irrelevant to most of Peru’s workforce.

It also means policymakers face another challenge if they attempt to seriously use the minimum wage to tackle poverty.

Even in these hard global times, Peru continues to boom. Thanks to that dynamism raising the salary floor might not kill net employment.

But some economists argue it could hurt on-the-books jobs, pushing workers back into the country’s surging underground economy. With tax revenues already low and labor rights often unenforced, that would be the last thing Peru needs.
The minimum wage is due to be revised in 2014. If the issue is a political and economic headache for the Obama administration, then in Peru it could just turn into a migraine for President Ollanta Humala.

— Simeon Tegel

7. South Africa: Only for most vulnerable

South Africa is a profoundly unequal society, with one of the world’s widest gaps between rich and poor. Official unemployment runs at around 25 percent. Unofficially, it’s closer to 40 percent when you include people who have given up looking for work.
There is no, single national minimum wage — instead, the government prescribes salary floors only for specific work sectors considered vulnerable to exploitation. These are job fields in which workers are low or unskilled, low paid, and lack union representation, such as domestic workers and farm laborers.

Further confusing things, the minimum wage rate varies depending on work sector, region (i.e. urban or rural), pay period and other factors.

For example, the lowest pay for a Johannesburg domestic worker, who toils more than 27 hours a week, is 8.95 rand ($.85) an hour or 1,746 rand ($167) a month.

A farm worker’s minimum is 11.66 rand ($1.11) an hour, or 2,274.82 rand ($217.13) a month.

But all of this is assuming that employers follow the rules. Compliance is reported to be low. According to a 2010 study commissioned by South Africa’s Department of Labor, minimum wages are ignored 45 percent of the time.

*After this post published, Germany approved an €8.50/hour minimum wage.

By Alex Leff, GlobalPost
This article is syndicated from GlobalPost.

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