Following on from yesterday’s post about a proposal for a minimum wage rule in the EU, I thought it would be worth describing how federal states deal with wage setting. The USA has a Federal minimum wage (currently $7.25) but states (and even localities) may set their own minima at higher rates. The purchasing power of the US Federal minimum wage has fallen over the years rendering it pretty ineffective. If it were adjusted relative to purchasing power from its 1968 level it would now be nearly $20 an hour.
In Canada, however, the responsibility for labour law including wage setting rests with the Provinces and Territories. The Federal government only sets minimum rates for workers under Federal jurisdiction. Even this rule was adjusted in 1996 by linking the rates to the general adult rate in the province where the work is performed. Most people in Canada on minimum rates are under 20 years old.
Australia, a very much more centralised Federation than is Canada, provides a different example. There is a Federal minimum hourly rate, said to be the highest in the world. The point about Australia is that, as far as taxation and social benefits are concerned, it is much more centralised than Canada (the USA being somewhere in-between the two models).
India, another Federation, has recently legislated for a universal minimum wage set at a very low level. Even so, compliance will be difficult to ensure as 90% of Indians work in small or unregulated businesses or are self employed (often intermittently). There may now be an apparent legal floor but most people are likely to remain under the floorboards.
The lessons for the EU are clear. First create your political union and establish a uniform system of taxation and social welfare. The more centralised your political union (e.g. Australia) the more likely you are to be able to ensure a uniform minimum wage covering all types of work throughout a vast territory. Even if the EU were to attain its goal of political union it should not bank on it being a highly centralised model. Any attempt to impose a uniform rule for wage setting for the whole EU seems, at present in the absence of political union, an utterly fruitless and time wasting task.