Do we need minimal salary?

For several last years you can have noticed a liberal* attacks on social regulations of employment contracts. /*the term "liberal" is used here in its European historical meaning - this is a person who is confirmed follower of free market theory/ Minimal salary (also wage) is attacked especially. It is accused of being harmful for entrepreneurs, employees and economy. This is the main combative argument. The alternative for these legal laws is fully free market which mechanics are to be perfect regulators of the whole social life. Such statement is notoriously been said by apostles of liberalism. Market is perfect because it spontaniously regulates itself making good for every participant. The basic and essential premises are uncontrolled casual choice of transaction conditions and contracting party. The second premise is availability of buyers and sellers in profusion. When offer of an entrepreneur is unsatisfactory one can easily find and choose another - more favourable. Eventually, employee does not have to take any job, because he is free. No one forces him to work. Furthermore, employee is assumed to have savings or own production means satisfying his/her needs. The theory seems to be sound and perfect, but real life does not want to subordinate oneselft to it.

Miminal salary is a protection against exluding from social life and labour market

In real economy worker usually possesses neither savings nor production means. Lack of job or work with salary not covering costs of living for extended period of time menaces being turned out into dregs of society and out of labour market. What's more, the family of such worker is literally menaced of extermination due to the fact that in liberal state public organized social aid is not allowed and heavily discouraged. Social dole is banned because it allegedly discourages individual from creative activity on labour market and disrupts ideal market mechanics. Thus, will of own life preservation and own relatives, moral sense of duty force you to take unprofitable job.
Abundance of job offers belongs to science fiction either. There is always grave asymmetry between amount of enterprises offering jobs and amount of people in need of work. The ratio is one to a hundred. In the case of smaller cities, towns and villages - one to thousand - to workers disadvatage. The situation is even worsened by activity of organizations associating employers. There are many organizations which affect on working and salary conditions in Poland. For instance Business Centre Club, Polish Confederation of Private Employers or Confederation of Polish Employers. They fix employment conditions at whole branches, regions or even at scale of the whole country. Employee has no real choice: under pressure of time he has to take a job on social and salary conditions offered by employer.

Minimal salary preserves human being from biological annihilation.

One of the mian obstacles among liberals in realizing the meaning of minimal salary is recognized theory of value and prices. Understanding does not come into effect because they prefer to use money and high abstracts in their reasoning. Luckily there is a way to show and prove the need and sanctity some basic necessities in physical.

If one knows that man needs daily minimum 6000 kJ (1400 kcal) of energy to survive (here's been made some major simplification for clear argumentation), you can't provide him only 1000 kJ just because his work has alleged such market valuation. If such provision were hold for larger part of labour market, this would lead inevitably to massive dies of hunger and malnutrition. This is a very basic fact which liberals are avoiding in any possible way consideration of it. This man forced to work under these conditions by market circumstances would be very attractive to employer. He is attractive beacuse he is very cheap compared to other employees being reliably valuated. That's why entrepreneurs will invest to these segments of the market where labour is extremely dirt-cheap and thus unprofitable and deficitable in terms of board and lodging expenditures. This will result in distortion of the markets, defective resources allocation and disuse production agents. This is so because these workers achieve adverse (negative) value added (debit balance) even though there is everything sound and safe on entreprenurs' side. Debit balance means that workers must spend more money than they are being paid in order to work. Hypothetically increased demand would have stepped up salaries to 1200 kJ level eventually leading to required 6000 kJ. But this process must would have taken a lot of time - much longer than a worker and his family could survive. But in real economies such adjusting action doesn't appears frequently and this is where lies a real problem. Very good example is contemporary Poland where two thrid of salaries are below costs of one-person livin for sixteen years now. This causes massive scale emigration unheard of in Polish history.

Minimal salary equals to costs of consumption of biological production resurces

Every active participant in market game should gain enough income to cover his expenditures of functioning. This is the very basic requirement for rationality of economic process and it applies as much to families as enterprises.
Contemporary liberal economy has reduced a man to one of its resources, one of many production factors. Let's first determine all expenditures related with apparatus or machines, next let's do it the same in detail with reference to a worker.
If an entrepreneur wants to use a machine or other stuff for profit, he has to provide sufficient amount of energy (i.e. electricity), grease and inspection service. So, he must supply enough resources for simple reproduction (marxian term for current expenditures), If he doesn't want to drive his firm do decapitalization, he must make money savings for purchase a new one after the current in usage had been exploited. That is he must supply resources for extended reproduction. If he tries to reduce necessary outlays to the level below required minimum, he won't have enough savings for new machine either aparatus will fall apart in short time or it will not activate. He won't be able draw benefits from it. So, in order to gain profit you must cover all necessary costs of usage. As far as worker is concerned, one must provie him enough money so he could sustain his biological life, regenerate his vital force (simple reproduction) and maintain his offspring (extended reproduction).
It happens that costs of machine utilizing are under direct supervision of entrepreneur, but family costs of living are outside of enterprise. This externalization makes that businessman does not directly bear effects of too low expenditures on workforce. because unprofit (loss) is transfered outside firm to worker and his family. Enterprise is profitable, but the whole system is irrational and harmful, because hunger supply* appears on employee side. /*hunger supply is a phenomenon when many workers cannot earn enough for a living to support their good health nor even life, so they starve or die of hunger despite of being employeed/

Minimal wage is a better protection against corruption and crime

I've never supported thesis that morality depends on level of income. Nevertheless one must agree that wage established well below minimum costs of living may drive employee into crime. Worker faces dramtic dylemma; to keep on working for misery wage and condemn himself and his family for hunger and misery or to appropraite, make a fraud for some profit what would enable him to survive. Another dilemma faces clerk, who makes decisions about concessions, exemptions, tenders. Yet other dilemma appears in case of unemployment. Would you take a job for wage enough for catering simillar to concentration camps or would you take a risky one though very profitable related with crime like drug sale? You may rest assured that all these dilemmas would be considerably much lesser if it have functioned proper minimal wage there.

Minimal wage is protection of the market against faulty competition

Enterprises which are hiring workers for wages below substantial level are very harmful market players. They severely destort market mechanics as much as destort functioning of households and other enterprises. Clumsy run enterprises pass own loss on to wokrers by lowering wages. There is no accumulation in them that is savings and investments. Simultaneously extremely low price on product attracts quite large amouth of clients and thus taking away these clients from companies which made proper calculations and properly paid workers. In this way it worsens situation of fair companies eventually forcing them to use unfair practicies. Due to lower investments and accumulation defective allocation of capitals grows in power and employments goes down.
Strict enforcement of minimal wave would have eliminated frauds out of market. It would have risen profitability reliable enterprises. It would also freed and moved resources from clumsy entreprenuers to better ones.

Minimal wage protects consumers.

Allowing to exist firms which pay workers below of their substantial level forces reliable companies to decrease expenditures on development and work-out of new goods. They're also forced to cut costs excessively. Whole offer is shortened and market is taken over by trash goods. Excessive cost cut entails raising risk for health and life of workers and consumers. This is well known principle that bad but cheap product can squeeze out better one.

Minimal wage does not create unemployment

Minimal wage as booster of unemployment is leading charge of liberals. In reality this phenomenon is not connected with minimal wage at all. I've mentioned above that the very essence of minimal wage is to be a safeguard for keeping alive worker and his family members. If enterprise cannot afford to pay minimal wage it should go bancrupt as do enterprises which cannot afford to buy electricity for machines or gas for vehicles. In this case emerged unemployment is not caused by government intervention to economy but it is caused by faulty private management and other inherent mechanics of strict market economy.
These issues were addressed by Alan B. Krueger and Lawrence H. Summers. Both researches have proved that in the course 20th century real wages in United States were constantly higher than point of balance. It was not caused by trade unions nor goverment, but by employers who constantly paid above real market value whatever it means. Other researches has concluded that the real cause of unemployment are wages of high management. It is due to fact that only small percentage (3-5%) of all workes is paid by lowest rate. It is numerous as much as management staff. But the last group has several hundred higher payrolls and thus they influence and distort labour market hundreds times more. It is characteristic that in crisis days employment and wages of basic staff are going down, but wages of management are sky-rocketing. This is true for majority free market economies especially in the third world. So these are the entrepreneurs who are to blame for deviation of work price from point of market balance by lifting up managers' wages to excessive levels.

Minimal wage in Poland

Today in Poland minimal wage does not correspond in any way to described term in this article. It is not even enough to cover cost of renting small flat not to mention about fares, full board and clothing for one person! Real purchasing power of minimal wage is dropping rapidly since 1992.

Let's gather the results:

Minimal wage:

  1. is a protection against exluding from social life and labour market
  2. preserves human being from biological annihilation.
  3. equals to costs of consumption of biological production resurces
  4. is a better protection against corruption and crime
  5. is protection of the market against faulty competition (so called social dumping)
  6. is protection of consumers
  7. means better allocation of production factors i.e. higher economic growth
  8. does not create unemployment

Issued on website: 12th October 2003
English translation: 30th April 2007