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-Rajeev Kumar (Editor-in-chief)

Monday, November 16, 2020

Higher minimum wages to boost demand

In the US elections, Florida voters approved 60:40, a proposal to raise the state’s minimum wage rate to $15 an hour by 2026. President-elect Joe Biden supports an increase in the national minimum wage, unlike Trump. In high-income economies, a national minimum wage policy does raise incomes of low-wage workers, given better enforcement and governance standards. It also increases demand, with the propensity to consume higher at lower income levels. And that is crucial in the pandemic-struck economy.

Florida is the eighth state in the US to raise its hourly minimum wage to $15. The change would be incremental. Employers are required to raise the minimum wage, currently $8.56, annually by $1 for the next several years; once the $15-mark is reached, subsequent wage hikes would be inflation-adjusted. In the past, free-market economists like Milton Friedman have argued that a national minimum wage would lead to unemployment as firms would be unable to pay workers.

But empirical evidence suggests otherwise. Britain, for instance, has had a national minimum wage policy since 1999, but the “effect on unemployment has been negligible”. Britain also has a much lower minimum wage rate for under 18s, a higher rate for 21-24-year olds, and the full minimum wages for those 25 and above. The Indian Constitution defines a ‘living wage’, and we have the Minimum Wages Act, 1948. Minimum wages are fixed state-wise, given huge disparities, which are mostly above market rates. But compliance has been weak, as abundant underemployed farm labour depresses wages. This constrains aggregate demand while hurting welfare.

Courtesy - The Economic Times.

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इस वेबसाइट को जारी रखने में यथायोग्य मदद करें -

-Rajeev Kumar (Editor-in-chief, Sampadkiya.com)

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