The practice of defining minimum wages dates back to the 19th Century. In an effort to settle wage disputes, Australia and New Zealand created governing bodies to set the minimum rates for workers based on industry. The United States followed suit in the beginning of the 20th Century. Although the original American regulations only applied to women and children, the laws were eventually expanded to include all workers (Efforts, 1936). These regulations in developed countries still exist today.
When operating in less developed countries, multi-national corporations (MNCs) are bound by local governments to pay workers the country’s minimum wage. Wages paid by MNCs is usually above the minimum wage; making these jobs more desirable. The unfortunate circumstance in many less developed countries is that the minimum wage is too low for a worker to live and support a family. Therefore, the wages paid by MNCs, though above the host country’s minimum wage, are still too low to keep the worker and family above poverty (Boatright, 2007).
Unfortunately, raising the wages of workers in these countries is not a straight-forward task. If the wages are raised too high, the incentive for MNCs to operate in these countries dries up. After all, their main resource is inexpensive labor. If wages get too high, MNCs are more likely to tap into the expensive, but highly skilled labor available in developed countries. This fact has some economists complaining that raising the minimum wage in developing countries is morally objectionable (Boatright, 2007).
Due to the fact that low wages in developing countries are required for those countries to maintain their competitive advantage, there is really no right answer to the question “What is a justified wage?” This question can only be answered in the context of the country in question. It is imperative that developing countries keep wages low enough to attract foreign investment, yet high enough to support workers and their families. Therefore, the only serviceable definition for a justified wage is one that is low enough to keep MNCs interested and high enough to support the workforce (Boatright, 2007).
In July of 2007, the Fair Labor Standards Act was amended to raise the U.S. minimum wage to $5.85 per hour (U.S. Department of Labor, 2008). This is in sharp contrast to the minimum wage in Taiwan which was raised to $2.95 per hour in 2007 (Taiwan regulations, 2008). Although this wage is not low compared to many undeveloped countries, it is still significantly lower than the minimum wage in the United States.
Taiwan represents an interesting case. As Boatright (2007) points out, Taiwan is no longer a low-wage country. Taiwan used its low wages to attract outside investment which resulted in an increase in the number of jobs available. These increases in investment lead to greater development in the country. The result is that Taiwan now has higher-paying jobs (Boatright, 2007).
Taiwan’s lower minimum wage is an excellent example of a justified wage. It is still low enough to attract outside investment for Taiwan, but high enough to provide adequate income due to Taiwan’s lower cost of living. In addition, Taiwan workers can earn much more due to the effect of the market on wages. The average pay in the industrial and service sectors in Taiwan is $7.19 per hour (Taiwan regulations, 2008). By all accounts, Taiwan is a model for less developed countries to follow.
Boatright, J. (2007). Ethics and the conduct of business, 5th ed. Upper Saddle River, NJ: Pearson.
EFFORTS TO ESTABLISH MINIMUM WAGE REGULATION IN AMERICA. (1936, November). Congressional Digest. Retrieved June 20, 2008, from Academic Search Premier database.
Taiwan regulations: Minimum-wage rise. (2008, January). EIU ViewsWire. Retrieved June 22, 2008, from ABI/INFORM Global database. (Document ID: 1423494501).
U.S. Department of Labor. (2008). Compliance assistance: Fair labor standards act (FLSA). Retrieved June 22, 2008, from http://www.dol.gov/esa/whd/flsa/.