Minimum Wage: Concepts, Arguments and a Case Study on Australia

Running head: LABOR ECONOMICS
Labor Economics
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1LABOR ECONOMICS
A. Introduction
The determination of wage depends on contribution of workers in order to provide
direct or indirect, monetary or non-monetary reward guided by ability of the organization,
payment system and legal regulation. In deciding wage, minimum wage legislation is
considered as one important criterion. Levying a minimum wage actually protects weak,
isolated or ill-informed workers group from exploitation of employers (Sulaiman, Olanrewaju
& Tinuke, 2012) Minimum wage through the voluntary bargaining mechanism offers a
comprehensive protection to these group of workers. Minimum wage has now become a
global practice to protect used by different countries across the globe. The estimates of
International Labor Organization (2008) suggests that almost 90 percent countries today
practice the policy of minimum wage. One basic argument in favor of minimum wage is that
setting a minimum wage allows workers a reasonable income that can meet their basic
necessities and improve standard of living. The essay discusses concepts of minimum wage
with reference to a case study of Australia.
B. Definitions and concepts related to Minimum wage
In simple terms, minimum wage refers to the smallest hourly wage that an employee
has to paid as fixed by legislation. There is a periodic adjustment to the fixed minimum wage
in line with price level and inflation. The International Labor Organization defines minimum
wage as the minimum payable sum to a labor for the performance and services offered within
a given period, that is computed based on time or output, which may not be reduced, which
cannot be reduced either by collective agreement or by individual and is fixed such that it can
meet the minimum need of workers and their families in view of the prevailing condition of
the economy and society.

2LABOR ECONOMICS
The concept of fixing a minimum wage involves three basic ideas. First, minimum
wage is considered as the minimum payment to the workers to fulfil their daily necessities of
food, clothing, education, housing, recreation in relation to economic and cultural
development of the specific country. Second, minimum wage presents the minimum level of
permitted remuneration fixed by the law or fact irrespective of the remuneration method or
workers’ qualification (Blackburn, 2016). Third, minimum wage refers to the wage that each
nation implements by the force of law and is implemented under the threat of penal or other
jurisdiction sanctions.
The effective implementation of minimum wage depends on a number of factors. The
success of minimum wage legislation depends on the extent to which it can offer protection
to all the workers involve in an employment relationship including youth, women and
migrant workers irrespective of contractual agreement. Minimum wage needs to be set in
such a way that it can cover need of the workers and their families (ilo.org., 2019). Another
important factor in determining success of wage legislation is whether employers comply
with the regulation of minimum wage.
Figure 1: Main dimensions of minimum wage
(Source: ilo.org., 2019)

3LABOR ECONOMICS
C. Arguments for minimum wage
Several studies in the field of minimum wage support a legislative minimum wage by
indicating several benefits of minimum wage. Some arguments in favor of minimum wage
has been discussed below.
C.1 Positive effects of minimum wage on health, education and the society
A considerably higher minimum wage helps to sustain a healthy population and
reduces mortality. The minimum wage by securing a minimum income allows people to
afford enough food, do physical exercise and reduces premature deaths (Horn, B. P.,
Maclean, J. C., & Strain, 2017). As minimum wage increase wages of low-income people,
there is a significant improvement in condition of overall health along with a reduction in
health inequalities. Minimum wage in addition to improving state of health of worker also
increases school attendance and reduces the tendency of school drop outs. Studies found that
teenager living in poverty are three times more likely to miss schools compared to other who
living in a good condition (David, Manning & Smith, 2016) Minimum wage also has a
positive effect on society in terms of lowering crime rates. The minimum wage by ensuring a
sustained minimum income helps to reduce poverty related crime.
C.2 Minimum wage and poverty reduction
Implementation of minimum wage is seen as an effective way to reduce poverty and
income inequality. Minimum wage has a positive consequence on income of low-skilled poor
workers who previously receive a lower wage enjoy a considerable income gain (Sorkin,
2015). Higher minimum wage results in a considerable boost in income of people living in
bottom line of income inequality. Study on United State showed revealed that minimum wage
substantially increased earnings of lower tail of the income distribution since 1970. The effect
stopped with a substantial decrease in real value of minimum wage (Konczal, 2014). This