عواقب قانون الحد الأدنى للاجور: جزء ٣

Written by Islam Hussein. Posted in + اقتصاد, ليبرالية +

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كتابة إسلام إبراهيم حسين 

 لقد أعجبني أيضا هذا التعليق من الأخ ragab_econ

There is another point that goes against the minimum wage – at least for Egypt – that I would like to add. In developing countries, like Egypt, law enforcement is not very strict. That’s why you have huge informal sectors, which you don’t have in more developed countries. Experience in India showed, that when the minimum wage was set too high, the proportion of the labor force force working in the informal sector increased, because many firms tried to escape the minimum wage by “moving” to the informal sector.    
So in the end, the minimum wage only benefited a number of workers, those who stayed in the formal sector, and made life much difficult for those working in the informal sector. You have to remember that when working in the informal sector, you are not eligible to social security, aren’t payed the minimum wage and you aren’t protected from being fired. All in all, you are worse off than working in the formal sector without the minimum wage.   

Some I’m sure will argue that the law can be enforced. I think this is an illusion. We all know the Egyptian police and law enforcement and how creative Egyptian’s are when it come to breaking the law. This will only become possible maybe in 10-15 years of sustained development.

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Comments (2)

  • H.G.

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    >To rest the case on Minimum wage fallacy, and based on empirical economic evidence rather than emotionally-charged rhetoric (which predominates the Egyptian economic debate nowadays), these are some points to corroborate opposing minimum wage as a tool for poverty reduction and labor right protection:

    - Facing increased costs, businesses are often forced to reduce entry-level positions. The very positions that serve as an important first step for low income individuals to gain additional skills and knowledge.
    - It does not guarantee a raise for individuals earning above any government mandated minimum wage rate as often touted by supporters.
    - It acts as an indirect tax increase. In low margin industries (retail, restaurants, grocery, etc) cost increases are often passed on to consumers.
    - It is a disincentive for workers to obtain additional skills and education to earn a higher wage as you previously pointed out.
    - It may produce a negative effect on small business and entrepreneurial activity which is what the Egyptian economy is in dire need for
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