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IKEA’s “Minimum Wage”

July 4, 2014 in Economics

By Matt McCaffrey

IKEA has announced it will be raising the “minimum wage” of its US employees to $10.76 per hour, an increase of about 17% from the current minimum. The news comes in the midst of another “national discussion” (often code for anti-economic hysteria) about minimum wage “reform” (always code for an increase).

Economic criticisms of the public minimum wage are readily available, but IKEA’s decision is different. It does have some interesting economic implications, but there are a lot of other issues in this story worth discussing, not the least of which is the language used to report it. That is, I have to wonder why people use the term “minimum wage” to refer to the internal policy of a private firm. Maybe it’s just a convenience of language, but regardless of its true cause, this usage gives a rhetorical advantage to proponents of government-mandated minimum wages.

That is, using “minimum wage” to describe both entrepreneurs’ decisions and government regulation obscures the distinction between them, i.e. that one is chosen by employers and the other forced on them under penalty of law (often through the influence of larger competitors). Using the same term opens the door to falsely conflating policies, making it seem like private and political decision making are the same or similar. If private firms declare their own minimum wages, a government minimum wage loses its distinctiveness, and seems like just another benign entry on a long list of possible wage policies. It’s all too easy—as news outlets reporting this story demonstrate—to compare IKEA’s minimum wage to the federal minimum wage, as if each is just a different but harmless way to improve people’s welfare.

Confusing the language of public and private decisions in turn reinforces the common idea that wages are set at the discretion of business, with high wages due simply to the good nature of employers, and lower wages to greed and disregard for employee well-being. If this were true, it might make sense to consistently increase the minimum wage; after all, we want people to be better off, don’t we?

Language aside, however, economists might criticize IKEA’s decision as a foolish attempt by private firms to imitate public policy; essentially, the company is needlessly giving itself a choice between earning losses and experiencing the usual problems of unemployment and discrimination that result from trying to hold wages artificially high. While there is probably some truth in this kind …read more


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