Monday, 28 January, 2008

Per capita income in Samoa and minimum wages in New Zealand

First-world economists often speak of India as being a nation with two economies: one for the middleclass nation that has a lifestyle comparable to Western Europe; the other for poor India half-naked and half-dead on less than a dollar a day.

The interpretation is surely debatable, especially the first half. But we won’t do that now. Instead, let’s use the same technique to raise a question about Western economies.

What happens when we look at a developed nation and its neighbouring countries as separate nations with one economy?

What happens if we, say, think of New Zealand and its neighbouring islands as a single economy? Or combine USA with Mexico and the Caribbean? Or Germany and Turkey? France and its former colonies in North Africa, like Algeria and Tunis? Maybe even England and the Indian subcontinent, if we allow the word ‘neighbourhood’ to mean principle supplier of immigrants, mainly low-skilled or unskilled labour? (Strangely, Japan doesn’t seem to import immigrants.)

The links may be tenuous in many areas, but it may be useful to investigate one: How does the minimum wage in a developed country vary with factors pertaining to its neighbourhood, particularly the neighbours’ per capita incomes and their unemployment rates (the two [income and unemployment rate] would probably be highly correlated).

Obviously, immigrants need not be imported in hordes to depress minimum wages. Laws threatening to welcome them should be enough, and vice versa.

I suppose the minimum wage stipulated by law changes more slowly than per capita income. Perhaps we should than look at the actual minimum wage, if such data is readily available, or the ratio of minimum wage to per capita income, or some function of that sort.

Frankly, I’d be very surprised if such an investigation hasn’t be carried out yet. On the other hand, the results seem so predictable that none may have actually done the math.

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