Looking east from Inspiration Point, a walking and biking path that follows the ridge of the hills above Berkeley through Tilden Park. A little relief for the eye before reading. This is watershed land owned by the East Bay Municipal Utility District (EBMUD) and the lake is a reservoir.
This is the paper that Joe wrote at Dean Hoa’s request comparing different arguments about how to set a minimum wage. The request came originally from the VGCL to Ton Duc Thang Faculty of Labor Relations and Trade Unions as a research project. Joe has it credited as authored by both of us, but my contribution was mainly setting up the outline and figuring out how to organize the research. The research involved some Skype interviews but it was mostly going through about 60 articles. He summarized them in a long table that could be searched by key word. This table is available to anyone who is interested; send me a message and I’ll send it to you.
The paper should be readable and self-explanatory. Joe separates the arguments into living wage, profitability wage, productivity wage and consumption wage. But setting a minimum wage is not a mathematical process. It is a political process, all about power and organizing.
For the US reader who is interested in minimum wage issues and following the fights here in the US, such as the Fight for $15 and the local minimum wage increases in places like Seattle, here is something to know. Our students working part-time in Ho Chi Minh City make between 14,000 and 17,000 dong per hour. With 15,000 dong, you can buy a bowl of pho for lunch at the student canteen. In other words, an hour of work at minimum wage can just about buy you lunch. The same is true in the US. Whether you’re in California where the minimum wage is $10 per hour or Indiana where it’s $7.25, either place you can just about buy lunch — a slice of pizza or a sandwich. In both places, in our highly developed economy and in Viet Nam’s developing economy, the workers at the bottom of the economy are in pretty similar situations.
This is a different way of looking at workers in the global economy. You don’t have to focus on the exchange rate of money (namely, that 17,000 dong is about 79 cents) or that $10 is about 220,000 dong (enough to pay someone to work for you for a whole day, if you wanted them to). Instead, you think about how someone lives in that economy. It doesn’t mean that minimum wage workers in Viet Nam have it good. Instead, it means that in both countries, if you work for an hour you can just barely buy the calories you need to keep you going another four or five hours. You don’t have anything left for housing, transportation, clothing, education, family – much less your cell phone.
Another thing minimum wage workers in the US and Viet Nam have in common: they work for employers who are all part of the same global supply chains.
Abstract/Introduction
This paper is written in response to a request from Dean Nguyen Hoa, Labor Relations and Trade Unions Faculty, TDTU, for background information regarding the setting of minimum wage in various countries, pursuant to a research contract between TDTU and the VGCL. This paper is meant to provide background information on arguments for various approaches to setting the minimum wage, for the use of the research committee on which he serves, that will assemble the full report on minimum wage for the use of the VGCL in its presentations to the National Wage Council of Viet Nam for consideration of the minimum wage in the future. Therefore this paper is not a survey of the entire minimum wage issue world-wide, nor is it a survey of minimum wage debate in Viet Nam.
After a brief look at the minimum wage historically and the levels of government that have been involved in setting and enforcing it, the paper turns to the key criteria upon which minimum wage has been figured, drawing from national experiences, reports by the ILO and others. These criteria include minimum wage as a living wage or in the Vietnamese terms, basic necessities wage; minimum wage as a profit-sharing wage; minimum wage as a productivity wage; and minimum wage as a consumption wage. This last refers to what would it mean to allow workers to buy what they produce, a concept linked to the productivity wage but not identical in content. The paper then moves to considerations of how the minimum wage has in practice been determined, not just with research and mathematical formulas, but including a brief discussion of the relation of forces and the political/economic struggles that have determined minimum wage, especially in places where substantial changes have been seen in recent years. The conclusion of this research is basically that none of the methods of computation or research are as important as the power expressed by workers and their organizations against capital, and usually government allied with capital, to limit wage increases. The paper concludes with a brief on the Viet Nam example based on research done by others, accessible in English. An appendix is attached consisting of a searchable table in Word listing all the documents examined, with keywords and quotes. Rather that clutter up this essay with citations, the reader should just use an obvious key word to search the table for documentation of points made.
The minimum wage historically
The concept of a state-enforced and established minimum wage is relatively recent, having first been discussed in the 19th century and implemented in most countries in the 20th century. This was in striking contrast to the old master-servant notion where maximum wage laws existed in some feudal or semi-feudal systems, but in a context where only a small percentage of the population worked for wages. Minimum wage laws have basically trailed the development and growth of a wage-earning working class from the birth of capitalism in Western Europe through its expansion throughout the world. It has almost always been an attempt to both gain a degree of labor peace and a minimal level of general prosperity in the societies that adopted it. Since the establishment of the ILO in the early years of the 20th century and the ILO standards, an increasing majority of countries have adopted minimum wage policies of one sort or another. This took place by writing into law the national wage bargaining process that had already developed, by establishing statutory minimum wage or by other means.
Historically, minimum wage provisions have been established at national, regional and/or local levels depending on the country and the time period. A single national minimum wage is the most common now, but there are many substantial exceptions, including, as it happens, both Viet Nam and the United States. Also, some nations limit their minimum wage to certain industries or exclude some workers, often agricultural or domestic, from minimum wage coverage. All of these factors change over time and have been the subject of discussion and struggle between the forces of labor and capital and their political representatives.
The historic basis upon which the minimum wage has been set is a shifting set of criteria including such factors as what has been called “a living wage,” “a basic necessity wage,” and factors also including productivity, profit-sharing, the capacity of workers to consume, the general existing state of the national or local economy, comparison with neighboring countries with similar levels of economic development, levels of enterprise profitability, and others.
Minimum Wage as Living Wage
Regardless of what it has been called, the central debate today about setting the minimum wage revolves around what workers and their families need to live a basic decent life in their own country at a particular time, if they are working full-time. The terminology used to describe this concept has shifted, with “living wage” being the common terminology used in the debate in the US today. Although that terminology has been hard to translate into languages of other countries, the ILO has adopted it as the best expression of that idea.
However, describing what it means does not answer the question of how a living wage is computed. This question remains fraught and complicated. First we must determine what is the unit upon which the wage is computed. Usually it is the family. But what size of family? How many workers in the family? Are they full-time or part-time? What percent of an adult is a child figured to be? And then, if the basic wage is figured on the basis of what a market basket of good costs, the contents of that market basket has to be arrived at, both in terms of what is in it, what it costs, and what quality it is. Alternatively, some systems have used Engel’s Law, which posits that low-wage workers use half their income to cover food, to define food costs and then double that for the cost of other expenses. Other variations have been suggested.
Basic wage or living wage has also been assessed as the poverty level assigned in a country. This definition also has problems, given that international determinations of poverty are difficult based on different levels of national development, different percentages of the workforce in wage labor as compared to agricultural or trade or the self-employed informal sector. For a detailed analysis of some of these factors and recommendations in Vietnam, the recent ILO paper by Richard Anker gives a substantial critique and summary of the application the living wage criteria in Viet Nam (see appendix).
The minimum wage as a living wage has been shown to have substantial political resonance in the US and other contexts where the computed poverty level and the existing Federal (and most state) minimum wage are for various reasons far below what most would conceive of as a basic decent living (or livable) wage.
Minimum wage as profitability wage
Another way to compute a living wage would be as a share of the profitability of the employing firms in a country or jurisdiction. This has not been a potent factor in many computations in the past. However, it could become significant as more supply chains cross international boundaries and if, and in response, trade unions and others attempt to establish multi-national wage floors. An example of this is the Asian Garment Wage Floor Initiative, which has been put forward by unions in a number of Asian garment-producing countries. The major concept here is that the final price of the garment at the top of the supply chain should be what determines the wage of the workers at the bottom of the supply chain. Naturally, calculating what constitutes profit would require some assumptions and agreements since various countries use different accounting systems.
Minimum wage as a productivity wage
It has been argued strenuously by employers in some parts of the Global South (not, usually, in the Global North, where worker productivity has increased much faster than wages in the last 40 years), that low levels of worker productivity especially in places like Viet Nam as measured by GDP per capita, will not support a higher minimum wage and therefore would drive businesses into bankruptcy or out of the country. Therefore they argue for minimum wage tied to productivity, with productivity largely defined as GDP per capita. Further, this argument often devolves into invidious descriptions of the lack of labor discipline reminiscent of employer arguments in 19th century US as workers then were moving from rural agriculture to urban industry, and from self-sufficiency to a great extent to capitalist wage labor.
There are a number of responses that can be made to this argument from a labor perspective. One is that productivity, both as measured by GDP per capita and productivity as measured at a particular enterprise is largely influenced by factors that are not within the control of workers. They include the level of technology used (in other words capital investment), the efficiency of the production process set up by managers, the training supplied to workers, the re-supply system, and that basically the only contribution to productivity that the worker has control over is labor discipline. This means, from the employer perspective, showing up on time and exerting oneself to the maximum all the time one is being paid by the employer. (whether or not this is realistic over life of any worker). So the argument here is that if the employers are really concerned about productivity, rather than just increasing their profit, then there are some investments that could be made that would increase their productivity radically. But in many low wage situations, employers do not make these investments because they can still buy labor power so cheaply.
Also, evidence suggests that higher wage can actually improve productivity on an enterprise level. It does this by cutting turnover of workers and avoiding costs of re-hiring and training, as well as increasing employee commitment and willingness to assert both effort and initiative. The skills of the workforce increase over time fostered by decreased turnover, and there is a higher degree of labor peace, since job actions and strikes reduce productivity to zero. Mark Linder, in his important little book, Labor Statistics and Class Struggle, has a good summary history of these arguments based on the labor portions of unit labor costs over time.
Finally, the entire notion that productivity of workers in the Global South, including Viet Nam, can be effectively measured by per capita GDP is suspect. In fact, measuring productivity by merely assigning per capita GDP as it is currently computed, based on end sale prices on the market, contributes to what John Smith has described as “the GDP illusion” (Monthly Review July-August 2012 p. 88-91). Basically, the argument is that in poorer countries where actual production mostly happens, countries where their workers are making a greater contribution to global wealth, GDPs are counted as much smaller than they should be. This is because GDP and trade data only count market transactions. But that is not where value is created. Value is created where the work is done and the product is produced: “Values are created in production processes and captured in the markets, and have a prior and separate existence from the profit finally realized when the products are sold.” This conflates value with final price and taking the GDP as essentially the sum of the value added at each firm. “The value that is captured by a firm in the sale price at the end does not in any way correspond with the value of the living labor. Smith also points out that mainstream economics fails to note that many firms that supposedly generate value are actually engaged in non-productive activity like finance and administration that produce no value at all. This problem explains why the Global South is underestimated in the dominant paradigms. “Labor’s share of GDP within a country is not directly and simply related to the prevailing rate of exploitation in that country, since a large components of GDP in the imperialist nations represents the proceeds of exploited labor captured from abroad.’” (QUOTES FROM Intam Suwande, 2015 Monthly Review page 50-51.)
An immediate example is from Cornell University students visiting TDTU in January, 2016, who, on a factory tour in HCMC, saw shirt sewers putting price tags of US $160 onto what they had sewed, for which they were collectively paid pennies per garment.
In fact, related to the productivity argument, in much of the Global South, including Viet Nam, the wage of the worker has been driven below the actual value of their labor power by the increase of the reserve army of labor (John Smith 2015 MR page 94).
Minimum Wage as a Consumption Wage
The consumption wage approach to calculating the minimum wage could be seen as a variation of both the living wage and the productivity wage, but it is actually not identical in terms of either conception or specific argument. The idea is that workers should be able to buy what they produce on the wages that they receive for producing it. Historically, this argument has been directed to business because increasing workers’ purchasing power in this to way, to cover the largest percentage of the commodities that they produce, tends to shrink inequality in society. Doing this is also helps flatten out the business cycle, which is helpful to business by providing less volatile economic environment for them and less extreme business cycles. Historical examples include Henry Ford paying his workers $5 a day so that they could afford to buy automobiles in the 1910’s-1920’s in the USA.
Raising the minimum wage in practice
But in practice, how has the minimum wage been determined? What have been the most successful strategies for gaining substantial increases?
Regardless of the exact legal criteria, mathematical practices or research data used, the primary factor that determines the minimum wage and its size of increase (or decrease, which has happened under austerity policies) has been the relative power of labor versus capital as expressed in the society as a whole. In this respect, it is similar to the question of how collective bargaining agreements are arrived at except that CBA’s are usually focused on a particular enterprise or group of enterprises who are parties to a CBA In the minimum wage case, it applies to the entire relationship between capital and labor in the society as a whole. This power can be expressed in many ways: through direct influence on the government or governmental bodies (political parties, lobbying by unions and others), through electoral action in referendums or candidate campaigns, through development of a movement in the streets or mass action by workers, or in some cases through actions on the job by workers to halt production and thereby exercise political or economic pressure on both their direct employers and the government setting the minimum wage.
The minimum wage has become a subject of mass struggle in the past ten-fifteen years in many countries where it had not been for some time in the past. These countries include the US and Viet Nam. In the US, there have been many struggles, first for a local government employee and government –contractor “living wage”, and then, more recently, for a general local or state minimum wage set substantially in excess of the very low US federal minimum wage ($7.25/hour). The patterns of these, mostly successful, struggles have been similar, even though the computation of what constituted a living wage may have been different and certainly what actually constitutes a living wage differs substantially from one part of the US to another, from rural to urban etc. It should be pointed out that in both the USA and Vietnam the national set minimum wage will basically buy a worker a modest lunch for one hour’s work. Nevertheless, the US experience suggests the following key points as to how increases in the minimum wage are actually achieved in practice.
- Politically, it is most important to frame the demand in a way that will mobilize workers, not in a way that will be acceptable to decision makers in powerful positions. Those compromises get made later, but only on the basis of large numbers of workers (and working-class voters, in the case of a referendum) being activated in a public way. This is the value of the slogan in the US, “Fight for $15!” Workers could clearly see that $15 an hour would change their lives and, if not their lives personally, the lives of many of their friends, neighbors and family members. It would change their lives in two ways: one, it would give them enough money to have a semi-decent standard of living, and second, if that was really the floor, it would give people much more freedom to quit a job and find another, if there were no $7/hour jobs and every job in their industry had to pay $15/hr.
Organized active worker support at the base sometimes over a substantial period of time – i.e. months or years, not days or weeks – is necessary.
That support can only be generated with the vision of a substantial increase, and “substantial” means a 50% increase or more, so as to make the call for a minimum wage to become a living wage credible, and to overcome both the fatalism and pessimism of previously inactive often non-unionized workers to get them into active support. For workers at or below the poverty level despite being employed, a proposed increase of 10 or 20% is not sufficient to stir the vision of a better life.
The research backing up the true purchasing value of $15/hour, what its impact might be economically on workers, employers, the media, the economy as a whole, is important, but it is primarily important because it gives confidence to workers and those organizing the movement, not because it’s going to change the opinion of employers or fundamentally change the perspective of most of those government policy making officials who are instinctively pro-employer in the US. Just as the arguments at the collective bargaining table are as much for the membership and potential allies outside the enterprise as they are for the employer, likewise – especially since this is taking place in an even more public sphere than in collective bargaining – the arguments for it are primarily public arguments. If they are cogent, well researched and well presented, they will also provide some sympathetic individuals within the government or in certain sectors of employer groups, with cover which they can use to support a demand that already now is a public issue with mass support, which they would not have felt safe doing under normal circumstances.
- In the final analysis, just like in collective bargaining, these demands that seem often utopian at the beginning have been won because there was a credible threat of disruption, either economically or politically in some fashion. When the President of the City Council of Seattle realized that his personal political base could be at risk to the Fight for $15! led by a recently elected openly socialist council member, he was willing to compromise and work out a schedule for achieving a $15 per hour minimum wage in Seattle – and only then.
- Since in the US a minimum wage raise would overwhelmingly impact people who are not represented by a union, it is essential that forces outside of the union and the union movement be brought into support of the struggle. That means that all organizations and individuals who have a stake in the welfare of the working class need to be approached and won over to this struggle. That means small businesses whose customers are poor workers, or religious organizations whose members are poor working people. This means organizations that may not have thought of themselves as “class” organizations but may be mobilized on this basis if approached properly. And then a formal alliance can be built that can push this struggle forward and may be able to win other struggles, as has been the case in Seattle. This can then isolate the employer’s associations, and especially the most recalcitrant employers, on this issue. Otherwise workers are left with a very limited, compromised increase, that employers can easily accept, and that will not mobilize masses of workers, so that workers will lose even that in practice over a short time.
Impacts of increases in minimum wage
The dominant debate over substantially raising the minimum wage in the US has revolved around the issue of job loss. The argument, based on standard mainstream neo-classical economics, has been that if you raise the minimum wage you therefore raise the price of labor power through government action. This means you will reduce the demand for labor power that would have expressed itself in the labor market if it was possible to hire at a lower wage: basic supply and demand. Therefore as the argument continues, in its purest sense the existence of the minimum wage actually hurts the people it was intended to help because while it benefits some low-wage workers, it actually causes other low-wage workers to fall into unemployment and lose their jobs completely. Over ten years of empirical studies have finally come mostly (although not quite universally) to the conclusion that the impact on employment levels of minimum wage increases is minimal compared to the positive impact on raising wages of those directly affected and those immediately above them who generally will experience wage increases as well. This is fairly settled among most economists today.
Further, recent research has indicated that there are a number of other impacts that the minimum wage creates on a broad social economic level that are good for most people in the society. One, more purchasing power in the hands of workers tends to increase economic activity as opposed to having that money be profit which is often used as savings by the rich, speculation or other kinds of non-economically productive behavior. Two, raising the minimum wage tends to lower the churn of workers at individual employers that pay minimum wage and less worker turnover has many positive consequences for employers. It also avoids many social costs that high worker turnover creates (job training, unemployment insurance, greater call on public welfare funds, need for workers to change commutes or even residence, which is wasteful and lower their public participation, etc.). Three: Raising the minimum wage has the independent impact of particularly helping those who are the most vulnerable workers. In doing so, therefore, it not only decreases economic inequality in this society but it decreases it by helping those who have been most left out: discriminated racial and ethnic groups, immigrants, other minorities, women, etc. It is one of the most effectively targeted aids to those most in need of any social policy. Last, it has a substantial effect on reducing poverty in a society and thereby reducing all the negative consequences that go with having a significant poverty-stricken group.
The case of Viet Nam
While this paper is not meant to be an examination of the minimum wage case of Viet Nam (which it could not be, with the authors having only access to English-language documents) nonetheless, in the course of this research, enough Viet Nam-related information was encountered to make it worth reporting and summarizing.
First, it appears that, originally, substantial increases in the minimum wage were placed on the political agenda by the wildcat strikes of workers some years ago, during a time of great inflation when the minimum wage was losing its value and workers were facing survival issues. Second, Richard Anker, in his consultant report Dec 2014 to the National Wage Council and the ILO, critiques the three estimates of minimal living needs of employees and their families as figured by the VCCI, MOLISA and the VGCL. His report and recommendations regarding the manner in which to figure what would be the level that would fulfill the legal requirement in the Labor Code seems to me to be appropriate in all respects. He critiques the three estimates and their methodology while acknowledging the usefulness of each of them. This paper has nothing to add to his recommendations on this score. Third, given the arguments made in the English language press about minimum wage and the lack of any discernable worker activity at the base in support of the minimum wage demands in the last cycle, it would seem to this author that a call for a substantial minimum wage that would bring it close to a realistic living wage would be positive strategy to pursue for advocates such as the VGCL. The reasons for that are outlined in Section 7, above. It would also substantially add to the base wage upon which employers pay their payroll taxes and would help to make the social insurance funds more solvent.
Conclusion
The results of this investigation would suggest that none of the methods, manners of computation, or “facts” are as important in determining the minimum wage as the power built on the ground by organized workers to weaken the resistance of capital and the reluctance of government to seriously offend the interests of large employers. These last, especially in Viet Nam today, in contrast to the US, tend to treat the minimum wage as their basic wage and therefore pay social insurance based on that wage.
Our research suggests that the only strategy effective in getting a minimum wage to approximate a living wage in practice is to have workers excited and mobilized in support of the demand either at the ballot box or in the street, or the credible threat thereof. The technical arguments made will not by themselves change that. They can give, of course, added support to those who wish to advocate for an increase but need technical backing in order to do it. It is the hope that this paper, with the attached appendix (which represents a fair survey of the contemporary reporting and research on minimum wage in English, with a focus on the US) can contribute to that effort.
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The long table of approximately 60 references, with searchable quotes, is available if you want it. Send me a message — H
How's that Working Out For You? 