A New Measure of Inequality in the Labour Force

Wikipedia has an interesting table showing minimum wage rates in many countries. They then calculate what share of the GDP per capita in that country, a full time minimum wage worker worker would earn in a year.

The following table presents some examples for Canada, USA and a few comparable countries. It also shows the portion of the labour force which earns less than 2/3 median wages, a measure used by the OECD to describe the extent of the low wage sector in a country. It is also a rough description of the working population whose income is affected directly or indirectly, by minimum wage levels.

Figures are not available for most Scandinavian countries, as they for the most part do not legislate a minimum wage. However they do require that labour and business associations negotiate minimums as well as other wage levels, and these minimums are usually above the levels legislated by other countries.

Full-time annual minimum wage as a percentage of GDP per capita (source Wikipedia, Minimum Wages) and percentage low wage workers (<2/3 median wage) 2013 (source OECD Employment Outlook 2014)

              Min wage % GDP per cap            % <2/3 median 

Canada                            34.3                                           21.7

USA                                   29.1                                           25.3

Germany                         50.2                                            20.5

France                              53.7                                            n/a

Netherlands                   43.7                                            12.7 (2012)

Australia                          49.4                                            n/a

New Zealand                   57.2                                           14.6

UK                                       47.1                                           12.7 (2002)

These measures highlight inequality in the labour force. They are indicative of the extent to which governments guarantee that low-end wages are sufficient to support a lifestyle that meets community standards. Canada and the USA stand out as countries which permit a large portion of their labour force to be employed at very low wages although Canadian minimum wages are higher than in most of the USA.

There are lots of arguments around the use of minimum wage legislation to reduce inequality. Firms say that they will be forced to reduce the number of low-end workers, and that increased minimum wages push up the wage scale and thereby encourage inflation. Counter-arguments suggest that there are too few young workers to replace the retiring baby boom. So replacing some low-end jobs with automation, and thereby increasing productivity, might not be a bad thing. And if increased minimum wages push up wages for the bottom quarter or third of the labour force, so much the better. The workers who would be affected would be primarily in the retail, hospitality and food service sectors. So the price of a McDouble might go up, but it is pretty hard to “offshore” those jobs.

The other major instruments for governments to reduce inequality are encouraging or requiring some form of collective bargaining,  or redistributing income through the tax system. For the past several decades, most redistribution is done from the middle income group (because that’s where most of the money was) to the lower income group. But the middle income group has been gradually slipping downward while wealth accumulates at the upper end.  Nowadays a household with “average wealth” is actually above the 75th percentile of households in the USA population.* And a steadily-decreasing portion of workers are covered by collective bargaining. 

*Source: Mapping and Measuring the Distribution of Household Wealth: A Cross-Country Analysis, Frank Cowell, Eleni Karagiannaki and Abigail McKnight October 2012 http://www.lisdatacenter.org/wps/lwswps/12.pdf

So effective income redistribution would require taxing the rich, and that in turn would require politically courageous measures as well as effective international collaboration to eliminate tax havens.

We can probably expect public policy to move cautiously on both the wage and the income distribution front. But a bigger question may be whether bold and effective measures can be achieved within current structures of governance.

2 thoughts on “A New Measure of Inequality in the Labour Force

  1. Terry

    Politudes is proving to be a wonderful resource. It captures the highlights of the literature that are most relevant to current policy issues and does so without imparting any obvious ideological slant. Quite a feat!

    This last issue especially leaves me in admiration! I found almost every article to be personally interesting, relevant and state of the art — and for the most part telling me things that I did not know before. And I am a tough audience, as you know.

    My deepest congratulations,


    1. Hi Peter, Thank you so much for your kind and encouraging words! I hope you are well and enjoying life, and somehow I suspect you are still actively contributing.😄 Cheers, Terry

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