Readers Question: I would like to know why in the USA we have minimum wage law but not a maximum wage law? What are the advantages and disadvantages of a maximum wage law?
Many countries adopt a minimum wage legislation to increase the incomes of those on low pay. In theory, a minimum wage in a competitive labour market would cause unemployment (supply greater than demand) However, in the real world, many labour markets are monopsonistic and evidence suggests at certain levels minimum wages don’t cause unemployment. The ideal minimum wage is disputed, but, there is significant support for, at least some form of minimum wage.
Arguments for Maximum Wage
People earn too much and they ‘don’t deserve it’.
There was a maximum wage for professional footballers in England up until 1960. The maximum wage for footballers was £14 per week (1951), £15 (1953), £17 (1957) and £20 (1958)
With many clubs on the face of bankruptcy, some argue, the football League should return to a maximum wage – to prevent clubs spending more than they can afford on wages. However, this is really focused on the peculiarities of Football economics. where clubs have a tendency to lead themselves to the brink of bankruptcy.
Arguments Against Maximum Wages
If you want to reduce wages, why not increase income tax? A maximum wage limits the income of high earners, but, the government gets nothing in return. If you want to reduce incomes of high earners, you could just impose high rates of marginal income tax on high earners. This raises tax revenue for government which can be used to redistribute income.
Disincentives to Work. A maximum wage may encourage workers to leave and work in another country. Firms may find a shortage of skilled workers or top executives, this could harm economic prospects.
If firms are willing to pay high wages, then presumably the workers must have a value (Marginal Revenue Product) equal to their wage.
Apart from specific industries there is little benefit of imposing a maximum wage, save perhaps a mild feeling of social justice that people don’t deserve to earn too much (whatever that value is)
7 comments ↓
“… But the government gets nothing in return.”
Not at all the case. A maximum wage is redistributive, in that anything that would have been paid but isn’t because of the maximum wage is placed to other purposes. This could be the wages of co-workers, dividends to equity holders, capital reinvestment, or any number of other things.
The thing that all these things have in common is that they either directly or eventually increase the taxable base and therefore either increase tax revenue or lower tax rates. Either of these is certainly something that government gets in return.
i WOULD LIKE YOU TO HIGHLIGHT THE ADVANTAGES AND DISADVANTAGES IN BULLET POINTS PLEASE?
I have read his blog for more than a year and I feel that it is just fine with or without bullets. At least it’s presented in paragraph
I personally feel te whole topic has not ben covered well I dont a justification at all yet, why is maximum wage law bad for the country.
I dont think there is proper justification as to why maximum wage law is bad or good for a country.
The idea of a “maximum wage” — a cap on income — actually has a long philosophical and economic history.
For a look at that history, check out this resource, a 2004 book now available online at
http://www.greedandgood.org/NewToRead.html
“Firms may find a shortage of skilled workers or top executives, this could harm economic prospects.”
well, as a shortage of these individuals would arise, others would be more than willing to step into place, indvivuals that would accept the wage as having been higher than what they had been reciving before. Think of people that would actauly try to improve thamselves to fit the ocupation. On top of that if a company was mandated that the highest pay scale would only be 20 times the lowest pay scale it would cause more companies to increase their based pay, the wage that the majority of its employees make, in the effort to sustain a higher pay for its top executives. This action would increase the disposable income of the nation at large and would, in the long term, actually help the company by increasing sales.
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