Cleaners in a city earn low wages. The government wants to raise their pay. Compare three approaches.
Set a minimum wage for cleaners
- Cleaners in work: Pay rises immediately.
- Cleaning firms: Labour costs rise; some may hire fewer cleaners.
- Job seekers: If set too high, fewer jobs may be available.
A minimum wage above equilibrium raises pay for those employed but can reduce employment.
Link minimum pay to skills training
- Cleaners: Pay rises as they complete training and take on skilled tasks.
- Firms: Higher pay comes with higher productivity, so costs rise less.
- Government: Must fund and monitor training.
Tying pay to skills, like Singapore's Progressive Wage Model, raises pay alongside productivity, limiting job losses.
Leave wages to the market
- Taxpayers: No direct cost.
- Cleaners: Pay stays low while many people can do the job.
- Firms: Keep costs low and can hire freely.
The market wage reflects the large supply of labour. Without action, low pay persists.