Finance

What’s Work Worth? Comparing International Minimum Wages

May 12, 2014
By Steven Wishnia

Germany, one of the highest-wage countries in the world, has no legally set minimum pay. Neither do Sweden, Finland, Denmark, Austria, and Italy. The reason, German economist Thorsten Schulten said April 29, is that with more than 85% of these countries’ workers covered by collective-bargaining agreements, unions believe they’re strong enough to guarantee good wages, and asking the government to do it would be “an expression of weakness.”

That has changed in Germany, however. With unions weak in the growing service sector, the share of workers covered by collective bargaining has fallen to 58% from more than 80% after the 1991 reunification, so the labor movement is now campaigning for a minimum wage. The idea is popular, he added, because Germany is the only European Union country where workers’ share of national income fell from 2000 to 2010.

Schulten, an economist with the Hans Böckler Stiftung, a union-sponsored think tank in Dusseldorf, was speaking along with Heidi Shierholz of the Economic Policy Institute at “Work Is Worth More,” a forum at the Rosa Luxemburg Stiftung’s New York office.

In the U.S., Shierholz said, the main argument used against raising the minimum wage is that it would cause employers to lay off low-wage workers. Most economists believed that until the 1990s, she added, but current research indicates that the minimum wage’s effect on employment is minimal, it decreases profits but reduces turnover, and there is some evidence that it increases overall employment because it helps low-income workers buy more goods and services.

However, she said, the main current proposals to raise the minimum, such as the Harkin-Miller bill to bring the federal minimum to $10.10 an hour in 2016, are inadequate. Adjusted for inflation, she explained, that will be only about $9.70 in today’s dollars. If the minimum wage had kept pace with prices since its peak purchasing power in 1968, it would now be well over $10—and if it had kept pace with workers’ productivity, it would be $19. 

The other common argument against raising the minimum, that it mainly covers “teenagers working after school for beer money,” is also false, Shierholz said. The average age of workers who make less than $10.10 is 35, and only 12% are under 20 and 14% work less than 20 hours a week.

She also warned against exemptions that let employers pay workers who get tips less. Three-fourths of these workers are women, she said, and maids, airport wheelchair-pushers, and nail-salon workers outnumber servers in high-end restaurants. But raising the tipped minimum—stuck at $2.13 nationally since 1991, with similar exemptions in 43 states—gets “thrown under the bus” regularly, thanks to the lobbying “power of the other NRA”—the National Restaurant Association.

European minimum wages vary widely by region. In France, the Netherlands, and Belgium, they’re more than 9 euro, about $12.50. In Spain, Greece, and Portugal, they’re in the $4-5 range, and in Eastern Europe, they’re almost universally below $3.25, with Bulgaria the lowest at $1.38. Most European minimums are below the 50% of the national median wage defined as poverty, Schulten said.

With roughly half of U.S. jobs not requiring more than a high-school diploma and a short period of training, Shierholz said, more people going to college isn’t going to eliminate poverty. “The answer must be how do we increase job quality,” she said, by better conditions, stronger unions, and raising the minimum wage.

Schulten agreed. Stronger unions are the best solution, he said, but “to get a better minimum wage, we need strong unions.”

May 9, 2014

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