It is often said that a decent minimum is necessary to ensure the well-being of the population. But is that true? Let us analyze 10 very prosperous and successful countries without minimum wage.
Content
- Introduction
- Switzerland
- Austria
- Norway
- Denmark
- Sweden
- Finland
- Iceland
- Liechtenstein
- Italy
- Hong Kong
- Singapore
- Germany (2015)
- Conclusion
Introduction
In many regions of the world, particularly in Western Europe, North America and Latin America, many people think a legal minimum wage is something we need if we want a well-functioning society. Without it, they argue, workers would end up being exploited by their bosses.
If we stick to that argument, we might think that raising the minimum wage can only be beneficial. At the end of the day, it sounds like a good way to ensure that workers make more money.
But unfortunately, poverty is not prevented by either having a minimum wage or raising it. Otherwise, any third world country could simply improve its situation by introducing or increasing their legal minimum wage.
One of the best arguments against the existence of a minimum wage is that, even where it exists, the percentage of workers who receive it is negligible. For example, according to Eurostat, only 0.8% of workers in Spain were paid the minimum wage in 2018.
How do we explain that? Simply because wages are set by supply and demand. And how high those salaries are depends on how developed and wealthy that country is.
The second argument, and perhaps even more important, is that there are plenty of countries in the world without a legal minimum wage. And many of them are among the most prosperous places on the planet, and coincidentally where workers have the best standard of living.
Both these arguments prove that minimum wages are not needed and, at best, have no impact whatsoever on how the economy functions.
Let us next discuss in detail some countries without a minimum wage.
Switzerland
Switzerland is one of the richest countries in the world, and where workers make the most money.
It is true that the cost of living in Switzerland is high, but even workers who perform low-skill jobs enjoy a very decent level of compensation. And, on top of that, a fairly low tax burden.
According to the IMF, Switzerland’s GDP per capita is nearly $95,000 annually. And its unemployment rate is indicative of the country enjoying full employment. All this without the government stipulating any minimum wage.
If you really want to know the reasons why Switzerland is such a rich country, you can check out the following analysis I did:
Top 10 Reasons why Switzerland is so Rich
Austria
Next to Switzerland is Austria, another very prosperous country with no minimum wage. And yet another place where the working classes enjoy a very high standard of living.
In fact, GDP per capita in Austria is higher than in Germany, the United Kingdom, France or Japan. And the level of economic inequality, measured by the Gini coefficient, is lower than in all these countries.
In summary: more wealth, less inequality, an unemployment rate hovering around 5%, and no minimum wage in place.
Norway
Norway is always present as one of the top 10 richest countries in the world. And the Scandinavian country has many things going for it.
Norway, which has abundant oil and gas reserves and one of the world’s largest sovereign wealth funds, has no legal minimum wage either. And no one is complaining about it.
If this were not enough, Norway is also one of the countries in Europe with the lowest level of economic inequality.
Denmark
Unlike Norway, Denmark does not have any significant natural resources. What it does have in common with its northern neighbor is the lack of a minimum wage. And yet, or perhaps because of this, it is also one of the most prosperous countries on the continent.
The non-existence of a minimum wage in Denmark does not mean that companies can pay their employees what they unilaterally decide. Firstly, because many sectors set their own wages through collective bargaining.
And, secondly, because thanks to the great demand for workers by companies and their high productivity, those workers can demand very good working conditions.
Sweden
Sweden is often cited as an example of a quasi-socialist country with a very high standard of living. However, Sweden fans often forget to mention a very important fact: the Scandinavian country does not have a minimum wage, something that goes against the narrative of a socialist country.
In addition, Sweden is also one of the countries with the least economic inequality and a lowest unemployment rate.
If this were not enough, and despite high income and consumption taxes, Sweden has a favorable corporation taxes and taxes on capital income. Those are just some of its very pro-business measures.
In fact, inheritance and gift taxes do not exist there. And neither does a wealth tax. All this with a very low level of public debt, which reflects more budget austerity than in most Western countries.
Finland
Finland, another Scandinavian country, prosperous, with little economic inequality and its public finances in order, does not have a minimum wage either.
As in Denmark, certain economic sectors set their own minimum wage through collective bargaining, but the government does not intervene in the process. Nor does it have any saying in those sectors without collective bargaining. It is all left to negotiation between employers and employees.
Iceland
Often regarded as the fifth Nordic country, despite being an island and located far from the mainland Europe, Iceland also has no minimum wage.
The small country suffered a severe economic and financial crisis following the 2008 meltdown of its banking sector. However, it has been able to recover, and is once again one of the most prosperous in Europe.
Liechtenstein
Liechtenstein is a tiny country located in the mountains between Switzerland and Austria. And, like both its neighbors, Liechtenstein does not have a minimum wage.
According to the World Bank, Liechtenstein is the second richest country in the world, with a GDP per capita of more than $170,000 annually. Only Monaco enjoys a higher GDP per capita.
Liechtenstein uses the Swiss Franc as its official currency. Despite being a small country, its financial sector is quite significant. And its low-skilled workers also enjoy a very high standard of living.
Italy
I can imagine what some of the readers may be thinking right now: Italy is not a prosperous country. And that is partially true. But only because so far, we have only discussed countries that are far richer than in Italy. On the global stage, Italy can be considered a rich country.
As in most Scandinavian countries, some sectors in Italy set their wages through collective bargaining processes, without the government meddling or pretending it can guarantee a good standard of living for the population by decree.
Hong Kong
Let us now look at another region in the world and one of the richest places on the Asian continent. Hong Kong, which was until a couple of decades ago under British control and is now officially part of China, is one of the most spectacular cities in the world.
With just over 7 million inhabitants, Hong Kong has no minimum wage. And while it is true that the level of economic inequality is relatively high, it still manages to attract vast amounts of people interested in moving there to prosper.
To put Hong Kong’s success in perspective, the small territory is richer than Germany.
Singapore
Singapore is the most prosperous country in Asia, and one of the most incredible success stories in economic history.
The transformation experienced by Singapore since the mid-20th century is unprecedented. It went from being a third world country to one of the richest and most stable places on the planet. And without a minimum wage!
The only instrument Singapore has is the so-called “progressive wage model,” which serves to set minimum wages for just three professions: cleaners, security personnel and gardeners.
However, if we look at the progressive wage model in detail, we will realize that workers in those industries receive higher wages anyway.
If you are interested in knowing more about taxes in Singapore, check out my analysis on the subject:
Taxes in Singapore
Germany (2015)
Germany does have a legal minimum wage set by the government. However, I wanted to add Germany to the list of successful countries without a minimum wage.
The truth is that Germany had never had a minimum wage until 2015. And, probably thanks to that, it was the economic powerhouse of Europe. With a very low unemployment rate and a very low level of inequality.
We should also remember that Germany had to integrate several much poorer territories in the 1990s, which had previously formed Eastern Germany, a communist country that was under the direct influence of the Soviet Union.
So why did Germany introduce a minimum wage in 2015? Well, simply for political purposes. The government wanted to look popular by introducing a measure that it knew the country did not need. And it would be worth analyzing how things have played out since.
Conclusion
I hope you found this analysis of countries without a minimum wage useful. My purpose was to make you understand that such a measure is, at best, unnecessary.
But it also has the potential to create problems and distortions in the economy, such as an increase in poverty or greater difficulty for certain people to enter the labor force. Both of these could damage precisely the most vulnerable.
So why do some countries spend so much time talking about minimum wages? Well, simply because of ignorance, and because many politicians think they can personally further their careers by using this talking point. These politicians will never have to bear the negative consequences of their actions.
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