What does the minimum wage tell us about a country?
At first glance, one might think that a high minimum wage indicates a country's wealth. Indeed, wealthier nations often have higher minimum wages. However, this is not always the case. The setting of minimum wages carries significant political weight. For instance, the United States, known for its liberal economic policies, has a relatively low federal minimum wage of $7.25 per hour, in contrast to states like New York ($15 per hour) and Washington ($16.28 per hour), where the cost of living is higher compared to states like Kansas, Utah, or Texas, which adhere to the federal minimum.
Typically, the minimum wage trends with inflation, but recent spikes in inflation have not led to proportional wage increases. In New York City, a notoriously expensive city, the high cost of living has significantly drained the savings of many expatriates. Even those with substantial incomes have struggled with the rising costs, prompting some to relocate to more affordable cities.
Minimum wage and the welfare state
The minimum wage serves as a barometer of state intervention. Despite ongoing debates about the "welfare state crisis" since the economic downturns following the oil shocks, state involvement in societal matters persists. In liberal economies, state intervention is typically restricted to the essential minimum.
The welfare state focuses on critical areas of intervention: employment, housing, family support, healthcare, elderly care, and poverty reduction. The minimum wage is a key component of this framework, aimed at preventing social exclusion and poverty, maintaining employment levels, and boosting consumer spending. In a society where employment is a status symbol, joblessness can lead to social invisibility. A minimum wage ensures that individuals remain integrated within society and contribute economically.
Nevertheless, the system faces substantial criticism. Although designed as a poverty alleviation tool, the minimum wage is often said to perpetuate precarity among workers. Critics highlight the ongoing economic crises and rising inflation rates. The most recent crisis, exacerbated by a global health emergency, has led many locals and expatriates into precarious conditions. Initial state aid during the health crisis was temporary, leaving many expatriates struggling long after these supports ceased.
In response, there is a split in opinion: some advocate for increasing the minimum wage, citing examples from the European Union, where countries like Luxembourg, Ireland, the Netherlands, Germany, Belgium, and France offer relatively generous minimum wages (from €1,766 in France to €2,570 in Luxembourg per month). In contrast, countries like the Czech Republic, Slovakia, Croatia, and Bulgaria have much lower minimum wages, below €800 per month. This divide underscores the broader debate on how best to balance economic sustainability with social welfare.
Considering the host country's minimum wage
It's rare that one checks if the host country has a minimum wage, but it's an important consideration. While foreign workers with high salaries might overlook this detail, recent challenges faced by expatriates in the US from the tech industry, who experienced sudden layoffs, have highlighted its relevance. This year's widespread layoffs have prompted many expats to scrutinize their contracts and work permits more closely.
Understanding the minimum wage in the host country provides insight into the local economy, and one's standing in the job market or professional field. Is the host country's minimum wage higher or lower than that of the home country? Knowing this can also aid in financial planning, especially in assessing whether the minimum wage is adequate to cover living costs in the new locale. Moreover, minimum wages can vary within the host country, often being higher in the capital due to increased living costs. Is relocating to a capital with a slightly higher minimum wage a valid strategy to cope with the cost of living in a major city? These are critical questions for anyone considering growing their career overseas.
Moving abroad for work: Key points to consider about minimum wages
For global professionals, the term "minimum wage" can take on two different meanings. On one hand, the state sets a standard minimum wage that applies to all workers. On the other, there might be a specific minimum wage required to qualify for a work permit. An example of this is the reform carried out in Singapore.
Raising minimum wage thresholds for work permits
In March, the Ministry of Labor announced an increase in the minimum wage threshold for foreign workers effective January 1, 2025. To qualify for a work visa (Employment Pass), foreign workers in Singapore will need to earn at least 5,600 SGD per month (approximately 3,860 euros), an increase of 600 SGD from the current requirement. The threshold varies by industry and age; finance workers must earn at least 6,200 SGD per month (approximately 4,280 euros), and those over 40 will need to earn 10,700 SGD (about 7,380 euros), which rises to 11,800 SGD (approximately 8,150 euros) in the finance sector.
This trend is not unique to Singapore; countries like the United Kingdom, Australia, Sweden, Austria, Belgium, Denmark, and New Zealand have also raised their minimum salary requirements for obtaining work permits.
Are minimum wages a hurdle for international recruitment?
British companies sprang into action as soon as the former Sunak government announced its plans. Anticipating the rise in salary thresholds set for April 2024, they hastened their recruitment of foreign workers. Confronted with the government's "local priority" policy, these companies argue that the higher minimum salary threshold impedes growth. They contend that current labor shortages necessitate immediate action, not waiting for a future British workforce to become operational.
This scenario is not unique to the UK; similar frustrations are expressed worldwide as employers push back against restrictive immigration reforms, advocating for greater flexibility. Some suggest moving beyond a state-set minimum wage to a concept of a "fair wage" or "decent salary" that accounts for all life's necessities—food, rent, transport, energy, health, and clothing—to ensure a "decent" standard of living.
This idea gains traction with each economic crisis but encounters practical challenges. Defining what is "fair" and determining essential versus non-essential needs are complex issues. For instance, while American salaries might be higher than French salaries, French compensation often includes extensive social protections. In contrast, the US welfare state is minimal, and any social measure can be contentious. The debate highlights how, although minimum wage alone doesn't dictate expatriation strategies, it significantly influences them, particularly when it comes to regulations around obtaining work or study permits.
