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January 22, 2020

Minimum wages should be a cure rather than a curse

The establishment of minimum wages is aimed at preventing employees from being exploited by employers, enabling them to secure a socially acceptable standard of living and alleviating poverty, according to a report published by the International Labour Organization in 1992.
Experts have suggested two kinds of considerations — social and economic — should be borne in mind when setting minimum wages. The first entails taking into account workers’ needs, standards of living and the income gap. The second is about productivity, competitiveness and job creation. No doubt both present a dilemma, with one side preferring to increase the minimum wage while the other preferring to keep it at a low level. Either way, setting the minimum wage is a delicate balancing act.
It is worth noting that raising the minimum wage is largely irrelevant to reducing poverty in part because it is not totally focused on the poor. Instead, it should be viewed as an effective tool to ensure fair distribution of wages. Clearly, there is no universal rule as to the ‘right’ level of the minimum wage, given socioeconomic conditions specific to countries across the world.
A World Bank report in July 2003 stated two basic mechanisms for setting the minimum wage. According to the report, one is concerned with a statutory minimum wage that is set by government through consultations with trade unions employers. The other is a sectoral minimum wage that is set through collective negotiations by groups involved.
On the one hand, the minimum wage hike is likely to be followed by employment reduction, thereby triggering unemployment. On the other hand, the low minimum wage is a different story. Either way, minimum wages should guarantee a socially acceptable standard of living for low-paid workers.

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