To the lighthouse towards a global minimum wage: building on the international poverty line.

Author:Bolwell, Dain
Position:Contributed Article - Report
 
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Abstract

This article outlines how a global minimum wage might be introduced having regard to the political, institutional, and technical barriers in its way. It reviews the issues surrounding minimum wages in the context of globalisation, and assesses the evolution of labour standards in developing countries with a view to their application to a new minimum wages regime. The proposed global minimum wage rests on four pillars: (i) the World Bank's international poverty line recalculated as a universal wage floor; (ii) an electronic lighthouse that provides the global minimum wage translated for each developing country, and for the informal sector; (iii) involvement of the widest range of stakeholders; and (iv) commercialisation of its monitoring and remediation. The International Labour Organisation-World Bank 'Better Work' program is discussed as an example of how its governance might proceed.

  1. Introduction

    The issue of the establishment of a global minimum wage is both moral and economic. A future world may decide that wages below subsistence levels are neither tolerable nor desirable, both ethically and as a basis for industrial development. Like the abolition of slavery (1), the concept of a global minimum wage is tied to the issue of trade. While establishing and broadcasting a global minimum wage would itself constitute a metaphorical lighthouse, a phenomenon known as 'the lighthouse effect' indicates that its application can penetrate even the informal economy.

    Wage levels are probably the most important consideration for most workers, especially in developing countries where wages are the lowest. While labour rights and working conditions are valued, wages determine livelihood and self-worth. To its proponents, a minimum wage is a means of reducing poverty and inequality. It does this by putting a floor under wages, beyond which no one can be paid less. In so doing, it compresses income levels so that the income distribution is more equitable. Thus, it has the macroeconomic effect of increasing aggregate demand, since the lower-paid spend more of their income than do the wealthy--out of necessity. Yet to its opponents, a minimum wage has the effect of increasing the price of labour and thereby reducing employment. As former a US House Speaker, John Boehner, put it: 'When you raise the price of employment, guess what happens? You get less of it' (Clift 2013, p. 1). This may well be true of commodities that, unlike people, tend not to spend the increase.

    While most countries have some form of a minimum wage system (Belser 2012, p. 10), taken together they are inadequate (ILC 2014, p. 46). Few have a universal minimum wage system that applies across all industries and occupations. Many formal workers are exempt and others in the informal sector are not covered at all. Often, the implementation of such regulations is weak because labour-inspection agencies lack capacity or are corrupt. Further, in many export-oriented developing countries minimum wages represent the lowest possible rate for physical survival, 'which often becomes the maximum price that international investors are willing to pay, or not pay, if they can get away with it'(Chan 2001, p. 12).

    This article is concerned with the disconnect between the globalisation of the world economy on the one hand, and the fragmented nature of domestic minimum wage regimes on the other. It argues that the present system of voluntary and various domestic minimum wage arrangements is deficient in a globalised world and that it has not contributed to poverty reduction, nor to lower inequality. It investigates the political challenges to the introduction of a global minimum wage and how its governance might be structured, based on an existing example of global labour regulation that has developed over the last decade. It highlights how these concepts might be further developed in implementing a global minimum wage. Section 2 deals with the political economy of wages and how regimes have evolved. Section 3 outlines the main challenges to the introduction of a global minimum wage, while Section 4 traces the approach of the joint ILO-World Bank program, Better Work, that improves labour standards in developing countries. Section 5 outlines a suggested formula for such a wage, as well as options for its governance.

  2. The Political Economy of Global Wages

    The debate over minimum wages is informed by the neoliberal concept of minimal regulation and unfettered markets to promote economic growth, versus the neo-Keynesian view of market intervention to promote economic and social equity and, thus, overcome market failure. The neoliberal view is that in providing adequate rule of law and fundamental property rights, a free market system is the best way to ensure that economic growth is maximised, and that opportunities are available for entrepreneurs to profit and create wealth and jobs so that more people can participate and escape poverty. The concept of market freedom extends to the area of trade whereby, according to neoliberals, there are net economic benefits to trading partners that specialise in industries where they have a comparative advantage (3) (Ricardo 1821 s. 7.11). In this regard, the most common comparative advantage for developing countries is their cheap labour due to their stage of economic development. Increasing minimum wages in those countries may therefore threaten their competitiveness (Krugman 1997).

    Based on a liberal economic philosophy, the post-war removal of trade barriers was facilitated by the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organisation (WTO). Freer trade in goods and services has resulted in an increasingly globalised economic system, where freedom of capital movement for both investment and speculation is also taken for granted. However, the free market concept does not extend to labour in the same way. Neoliberalism approves of free labour markets, but only within national boundaries (Scholte 2005, p. 38). It is this constraint on labour movement that: enables global goods to be produced using the corralled cheap labour of developing countries, helps check First World inflation, and arguably reinforces global inequality. This 'international division of labour rooted in trade interdependence' is increasing rather than diminishing (Cerney 2010, p. 26).

    However, today neoliberalism is under pressure as the world economy is 'dimming rapidly' (Roubini 2016). This is due to the 2008 global financial crisis (GFC), which showed the destructive power of unrestrained financial markets, as well as to the Greek financial crisis of 2015. Neo-Keynesians are re-energised (4), as the need to jump-start the major economies of the West with demand and growth is clearly the immediate concern (IMF 2013, p. 14) (5). Monetary policies have not been adequate to do this.

    In the longer term, the issue of global inequality remains pressing. There is evidence that global poverty has been reduced in both relative and absolute terms in the past two decades (WDI 2012, p. 99). Yet much of this reduction has occurred due to the remarkable economic growth in China. At the same time, this has been at the expense of growing economic inequality within China, within countries of the West, and especially between countries (Oatley 2012, p. 349; Picketty 2014).

    Wage concepts

    While the French physiocrats observed that wages are 'reduced to the lowest level by the extreme competition of the workers' (Quesnay 1767), the concept of wages has since developed in parallel with the evolution of capitalism, of which it is a central part. Early political economists in the emerging industrial economies of the West focused on subsistence as the determinant of wages for the vast unskilled masses, and on economic vitality to explain regional and national differences (Smith 1952 [1776], pp. 28-29; Ricardo 1821, p. 57). How the benefits of capitalism should be distributed was raised as a social question during the same Victorian era (Mill 1909 [1870], II s.1).

    Although there were minimum income payments by the state in eighteenth century England via the 1795 Speenhamland (6) Law--later abandoned because it inhibited an industrial labour market (Polyani 2001 [1944], pp. 81-82)--legal minimum wage regimes began to be introduced in rich economies around the turn of the twentieth century, based on organised labour movements. These minimum wage regimes arose because wages in an unregulated labour market were often too low to support even a subsistence existence. The global Great Depression of the 1930s resulted in practical measures to reinflate demand, which included a federal minimum wage in the United States. These measures were backed by new interventionist economic theory that justified these instruments. At the same time, the United States revitalised the International Labour Organisation (ILO), which was established at Versailles in 1919 to mollify the concerns of global labour movements. Minimum wage instruments were encouraged more widely, but still domestically, as a result of the ILO structure and approach.

    As the post-war boom slowed and colonialism finally waned, structuralists began to question global inequities based on the exploitation of cheap labour in developing economies, in opposition to notions of its necessity to gain or retain comparative advantage. However, the collapse of the Soviet Union and China's rise based on capitalism quieted these views (Viotti and Kauppi 2010, p. 201). The global recession that began in 2008 has since diminished neoliberal notions of labour market deregulation. The question now for wages is rather how they can be better regulated in a globalised economy.

    Poverty

    Attitudes to poverty, at least in the West, have changed. Aristotle (1952 [c.340 BC.]) is indifferent: 'from the hour of their birth, some are marked out for subjugation' (ibid., book 1.5). Elizabeth I was annoyed at the...

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