Minimum wage hike: 7 basic questions

10 February, 2022

Minimum wage workers in a call center

Is an increase in the minimum wage necessarily good for workers? Under what conditions can it generate an improvement? Under what conditions does it reduce the wage volume paid to workers as a whole and render working conditions even more precarious?

Table of Contents

  1. Does raising the minimum wage improve the situation of “women and young” workers?
  2. Does it reduce “wage poverty”?
  3. What happens to the rest of the workers?
  4. What are the overall effects of raising the minimum wage on the working class when the cost of dismissal is left unchanged?
  5. How has the ruling class distributed what it has saved in workers’ salaries?
  6. Does raising the minimum wage improve wage equality between male and female workers?
  7. To sum up: Is any kind of minimum wage increase good for workers?

Does raising the minimum wage improve the situation of “women and young” workers?

The increase in the minimum wage directly improves the situation of the workers who receive it, among whom we find the least specialized and the last ones to enter the labor market. In this segment there is a higher proportion of young people and women.

So yes, among the workers who benefit from the minimum wage increase there are more women and young people than in the working class as a whole.

Does it reduce “wage poverty”?

It depends on inflation. If, as in Spain, the increase in the minimum wage is now 3.5% and inflation remains at 6.5%, the lowest wages lose purchasing power and therefore pauperization increases.

What happens to the rest of the workers?

The amount of the minimum wage does not only affect those who receive it directly. Formally, most workers’ salaries are calculated on the basis of the minimum wage -or its equivalent within each specific agreement.

Thus, workers with “seniority” or who have gained qualifications during their time in the company will expect that a rise in the minimum wage will translate into a higher than linear rise in their own wages.

In other words, if the minimum wage rises by €35 – 3.2% over the previous minimum wage, the salary of a worker with “seniority” will probably rise by less than 3.2% but in absolute terms by more than €35.

However, the company will also do its accounts. And if the redundancy costs are relatively lower than those of the minimum wage increase in the medium term, it will compensate the cost increase by laying off the most senior workers and filling their positions with workers with wages close to the new minimum wage who will no longer have seniority.

It is not even necessary for the cost of layoffs to be less than or equal to the wage savings for the company in the medium term. The company “improves its results” and becomes more attractive to new capital by reducing recurring costs, as we have seen repeatedly in mergers and layoffs in sectors such as banking and industry. And if the outlook is for minimum wages to continue to rise in the future, the incentive to “turn over the workforce” will be even stronger.

Therefore, any increase in the minimum wage that is not accompanied by an increase in firing costs will lead to turnover and “rejuvenation” of the workforce with rehiring at lower total wages.

What are the overall effects of raising the minimum wage on the working class when the cost of dismissal is left unchanged?

Evolution of wages in Spain in 2018, first year with a significant rise in the minimum wage. The collapse of average wages reduces the total wage bill collected by workers whom it concentrates around the minimum wage, while improving the remunerations via salary of the bourgeoisie and the corporate petty bourgeoisie.
Evolution of wages in Spain in 2018, first year with a significant rise in the minimum wage. The collapse of average wages reduces the total wage bill collected by workers whom it concentrates around the minimum wage, while improving the remunerations via salary of the bourgeoisie and the corporate petty bourgeoisie.

The overall effect is a concentration of workers’ wages around the minimum wage and a “collapse of average wages”. In other words, jobs with “decent wages” are increasingly fewer.

Overall, the effect of the sustained rise in the minimum wage since 2017 – and saving the distortions of confinements and their aftermath in temporary lay-offs and lay-offs – has translated in Spain into a reduction in the total paid to the workforce.

How has the ruling class distributed what it has saved in workers’ salaries?

A part has gone to dividends, of course, which was the goal, especially from 2020 onwards when lockdowns and falling consumption have put dividends in jeopardy. But as we can see in the graph above, a good chunk has been spent on increasing the salaries of middle managers and top managers, giving the variations in salaries a V-shape: workers concentrate their salaries around the minimum and the bosses, owners and family courts or various consulting firms, see theirs rise.

In other words, the corporate petty bourgeoisie and the corporate bourgeoisie have shared, in the form of a wage increase, a good part of what the workers were losing.

Does raising the minimum wage improve wage equality between male and female workers?

Not really… no. We are largely dealing with an illusion of numbers.

On the one hand, the increase in (nominal) salaries in one of the most feminized sectors of the working class does not mean that wage discrimination by sex for the same job (prohibited by law for decades throughout the EU) or sex discrimination in hiring processes (which, according to statistical studies, does not affect female workers but rather, in any case, female bosses and managers) changes at all.

On the other hand, the indicator now used by governments, the “gender gap” does not really talk about working women. The way it is calculated places much more weight on the salaries of female executives and managers, because it compares the average salary of all salaried women with the average salary of salaried men. A single manager weighs more in that average than hundreds or thousands of workers.

What has happened in “real life”? As we have seen above, corporate executives have been “feasting” at the expense of the salaries paid to workers while a whole series of legal reforms and public incentives have been pushing for the “feminization” of the management elite of the companies. The result: there are more women in corporate management positions who, in addition, are now paid more and therefore the “gender gap” is tending to narrow.

But for the working class the story is very different.

Imagine a typical working family with two children just entering the workforce, a father who has been in a company for 15 years and a mother who earns a little above minimum wage. The gender gap in this family would be equal to the percentage difference between what the father and mother earn.

Now the increase in the minimum wage has raised, below inflation, the wages of the children and the mother. But the father has been “turned over” and, in a stroke of luck, rehired in another company with a salary similar to that of his female partner. Wonderful!!! the “gender gap” has disappeared!!!!

But wait a minute: the mother’s and children’s salaries have lost purchasing power and the father’s has been reduced in absolute terms. The family as a whole has become poorer and, moreover, if we are in a Southern European country, the parents would more than likely be a community of property, their salaries going into the same current account since they got married. Equalizing them from below… does not make them more equal even among themselves, but poorer.

To sum up: Is any kind of minimum wage increase good for workers?

No. It will depend fundamentally on two things:.

  • Whether it is greater or less than inflation, and
  • Whether or not firing costs grow at the same time.

Across both variables:

  • If it is higher than inflation and firing costs grow sufficiently in parallel, it is positive for all workers, who will recover lost income.
  • If it is higher than inflation but firing costs do not rise, it will benefit the lower paid sectors of the working class but will worsen the situation for all workers.
  • If, as is the case in Spain right now, the increase is less than inflation and firing costs are not touched or reduced, the increase in the minimum wage will be negative for all groups of workers and for the working class as a whole.

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