Managing labour wealth and minimum wage

© Jagadish Wagle


Wage is the payment for the use of labour services. As like other factors of production labourers get wage from the national income. Wage can sufficiently preserve human resource and motivate them to the work. Three factors, i.e. good salary, job security and promotion represent good environment of work. But the issue is whether the wage is determined rationally or not.

Minimum wage rate is much talked issue over a period of time as it is considered to have increased.  The actual real wage is decreasing due to inflation. Decreasing real income, freezing wage rate since long and austerity measures are the factors making low income group’s life even harder. Though human resource is considered as a creator and organiser of development but wage is not paid global attention. But in contrast cheap labour has been searched globally, instead of increasing their citizen’s minimum wage rate. So considering the fact this article analyses the scenario of minimum wage rate to manage labour wealth of the country

Way to determine wage rate

As like others commodities there are some basic principles of how to determine the wage rate. According to Subsistence Wage Rate

wage must be provided to fulfil the basic needs. It is presumed that  ‘‘The wage earner cannot get more than is physiologically needed to preserve his capacity to work and to enable him to raise the number of children required to replace him when he dies.’’a Meaning at least food, health, education, transport and social/ritual needs of the family must be fulfilled from their wage earnings. Wage is paid for the subsistence level. If wage rate is higher than subsistence level then population starts to increase. If it is higher, then population/workforce will be illiterate and unhealthy. There is an inverse relation between population growth and wage rate.

Wage Fund theory says wage is determined based on availability for the wage. To determine the wage rate total amount of wage fund is divided by the available numbers of workers (e.g. w=c / p).  Meaning is higher the number of workers lower the wage rate, and vice versa.

According Marginal Productivity theory wage is determined as per the individual production capacity of a worker. Meaning higher the productivity of the labour higher is the wage rate, and vice versa.  

Wage rate is also determined by demand and supply of labour forces where higher labour force available would be lower the wage rate and vice versa.  Demand of labour is determined by the economic size and supply of labour is determined by population growth. Where there is demand and supply of labour is equal that is the point of minimum wage rate. (w=DL=SL)

Likewise in the globalised labour market foreign nationals (migrants) and technology intensive production can also be offered to manipulate wage rate. Also, wage is determined by bargain (Bargaining Theory) and Residual-Claimant theory.

But no worker knows how and under which theory their wages has been paid; neither any policy clearly tells that workers should be informed about how their wage is determined on what basis, sheer confusing or ignoring. Normally wage has been determined asymmetrically.

Clear disparity

There is huge variation of wage rate between bosses and workers, community to community, male to female, young to old, rich country to poor country and investors to workers. No uniformity has been applied to determine the wage rate.

CEOs are taking huge amount in the name of bonus from profit.1. Here are published few examples about bonus and disparity- ‘‘the EU was proposing to cap bonuses to 100% of a banker’s annual salary or to 200% if shareholders approve’’2. ‘‘Royal Bank of Scotland  to pay £576m staff bonuses despite £8.2bn of losses but boss warns of job losses as part of £6bn cost cutting plan’’3 ‘‘Lloyd’s chief pockets £1.7m bonus, staff share £395m in bonuses despite losses.’’ 4 ‘‘NHS England’s HRD to collect six figure salaries’’ but nurses are working for very low figure.5    The Fair Pay Campus Report, 2012 based on the responses of 113 universities, finds that ‘‘the average pay differential between the highest- and lowest-paid university workers was 18.6:1’’6, where an academia works for pittance.

wage rate jpg
Minimum Wage Rate

Governments are competing to increase military expenses rather than competing to increasing minimum wage rate and social benefits, would rather prefer to force itself to get out from welfare state. James Madison says ‘‘War is the parent of armies’’7 Global military expenditure stands at over $1.7 trillion in annual expenditure at current prices for 2012. 8 Footballer are paid sky rocketing payment than an army personal despite having high life risk and bad social life. Similarly minimum highest per hour wage rate of Australia is $17.39 and the lowest rate in Uganda is $0.01 per hour.

Figures are enough to tell the true story of ‘legitimate inequality’ created by states from their national income; which has increasingly been a serious issue of modern society. Since globalisation began private sector is considered very powerful. They have their own strong union to protest and lobby the ideas. Labour union is not so decisive against their corporate decisions.  Prof Stieglitz writes ‘‘If monopoly power increases, or firms (like banks) develop better methods of exploiting ordinary consumers, it will show up as higher profits and, when capitalized, as an increase in financial wealth.’’9

Wage rise is not harmful at all

No one is against increasing the minimum wage rate but everyone has different excuse. Wage has been determined asymmetrically by employer.

The political sector totally agrees in increasing the wage and equal pay as it is a popular step for vote bank too. In an election campaign President Barack Obama announced that “There is no denying the simple truth: America deserves a raise”10 Economists including Prof. Joseph Stiglitz defended increasing minimum wage rate and said that ‘‘CBO analysis underestimated the benefits and overestimated the costs” where he CBO report highlighted the potential job loss of 500,000”11.  IMF also urged the United States to raise its minimum wage, which it said is below international standards”12

Ryan observed that ‘‘some employers may respond to the higher minimum wage by replacing workers with robots or foreign labour’’13 A law firm representing the Kentucky Restaurant Association cited legal and economic reasons to oppose the minimum wage increase.17 There are many examples around when wage is being increased; immediately the corporate sector opposes the idea by saying cost goes up, unemployment increase. Companies simply prefer job cut if they deal with wage rise.

Studies have found 18 a link of ‘no effect’ of minimum wage rise with unemployment. Such as a recent paper 19 from University of California, have found no effect at all. John Schmitt presented the reasons for this conundrum in his new paper (pdf) 20. According to him employers can respond high wages as by 1) cutting benefits or hours or training  2) cutting wages for other, higher-paid workers 3) raising products prices 4) reducing profit margin 5) volunteering 6) becoming more efficient So on 21  John Schmitt’s conclusions are supported by more than 650 economists 22 including Joseph Stiglitz who signed a statement affirming that increasing the minimum wage would have little or no effect on employment but would improve workers’ well-being 23. So now it has been proved that minimum wage rise doesn’t have any effect to unemployment. So let it go up.

Is the minimum wage increasing?

To increase minimum wage rate and its uniformity is essential to manage human resources and their productivity. There is always a chance of ‘show up’ increment which always below than subsistence level. But widely expected level of minimum wage rise is likely a lucid dream. There is clear fight between ‘yes’ and ‘no’. Corporate sector and small business firms represent ‘No’. Global economy now is made with big part of private and corporate (business) sector that all about profit which is very powerful. They have their own excuse. And Government seems like inconclusive to take decisions without consents of business sector. Government intends to increase military expenditure but unable to save social benefits. It is true that many government representatives have their own business or share in business.  According to an opinion poll some 67% people from UK agreed that “the rich have too much influence”. The poll was done in Spain, Brazil, India, South Africa, the US, UK and Netherlands. 24

The Oxfam’s New Report- 2014 says that the rich have successfully widened their influence on state mechanism specially policies on finance, tax, business, incomes tax in favour of them. 25  recent study of OXFAM. In an article Paul Polman, CEO of Unilever have raised the need of ‘‘inclusive capitalism’’ to save the system.26

CEOs increase their bonus no matter how companies environment is, but majority of employee are struggling for livelihood, which are in decision making seek their benefits is the misery of this world. This is a problem of political system, which has failed to ensure that markets are competitive.27 Of course; societal wellbeing and economic efficiency fall, even as officially measured wealth rises. We simply do not take into account the corresponding diminution of the value of human capital – the wealth of workers, says Stiglitz.28 But it is even negatively consider raising minimum wage. Rich are decisive and got influence everywhere in the states. They are not hurry to increase wage rate as that is not their day to day problems. Poor and middle class are not in ‘power influence’ so rising minimum wage rate is a matter of desperate waiting for them.


This is not a question of increasing the minimum wage rate, but more importantly this is an issue of managing labour wealth in 21st century. To increase minimum wage rate and its uniformity should be a need of the globalisation. Several studies have found that rise of minimum wage rate does not necessarily increase unemployment. So if government is honest to maintain minimum wage rate at the subsistence level there wouldn’t be big problem.  Corporate, business and private societies don’t want put themselves at risk of high cost that might lead inefficient organization out from industry. So they would rather prefer to migrate in ‘cheap labour’ or replace robot in work place. It is government’s responsibility to coordinate between societies and provide support to them who are really in need. Uniformity policy must also be introduced maintaining minimum wage rate as it should be a global problem.

Politicians, Economists and policy makers are desperately working to increase minimum wage rate but they seem unable to do so because they don’t have good excuse to convince corporate sector. Globalization has not been refurbished for equality yet; rather it has been made dysfunctional. Frustration cannot be prolonging. People can change to create new world with new prosperity and rationally equal share of resources.


Click to access WP_95.pdf and

ILO -wage report 2012/13—dgreports/—dcomm/—publ/documents/publication/wcms_194843.pdf

Global wage figure- Wikipedia

Top ten countries in wage rate- The Richest

Cross-country Comparisons of Wage Rates 2001 –,_Challenges_and_Lessons_from_the_EU_and_the_US_/activities/sc_conferences/12/ashenfe.pdf

Cross-country Comparisons of Wage Rates 2009

International Minimum Wage Levels

UK minimum wage: a history in numbers- Guardian

Which country has the highest tax rate?- BBC-

sent a letter Monday

wage stagnation–stiglitz-blames-rising-inequality-on-an-ersatz-form-of-capitalism-that-benefits-only-the-rich#j1TSM7mD2veF5oT7.99

and rising inequality, (OXFAM)

The Capitalist Threat to Capitalism

theory of wages: Britanica

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close