Minimum Wage Effect on Unskilled Labours in Cambodia

ABSTRACT

This article is an illustration of several aspects of the minimum wage effect on unskilled labor with special reference to the Cambodian labor market. This work tries to highlight the advantages as well as the disadvantages of having a minimum wage particularly in the Cambodian market. It highlights the numerous theoretical models through the lens of economics and other relevant frameworks. Minimum wage has several effects like increasing the income level for workers while it can also lead to loss of job for unskilled labors. All these aspects has been dealt in detail in this article with special reference to the Cambodian socio-political scenario. Cambodia is a country which has been highly dependent on the US currency and the fluctuation of the US currency has significant effect on the Cambodian labor market. Moreover minimum wages also impact the training opportunities that are provided while being on the job which further impact their scope for improving their skills or job profile. It is justified to mention that this article has tried to throw light on the effects of all the aspect of minimum wage ranging from trying to invoke the theoretical frameworks to explaining the impact of external changes on the Cambodian labor market and tried to develop a framework for structured analysis which can be used for similar other academic studies.

INTRODUCTION

Since the days of industrial revolution labor market and the determination of their wages have been the cause of concern of several scholars and numerous researches have been carried out in this respect. Over the years policymakers have tried to establish the impact of minimum wage as an option towards increasing the income level of labors all over the world. It not only helps people in getting more income but also results in lifting workers from poverty. However there are also significant costs to other workers when it comes to the implementation of minimum wage. The present discussion highlights the effects of minimum wage on the Cambodian Labor market which is also influenced by the rising strength of the US currency. There are also considerations of on the job training which is funded by the lower wages and results in a higher wage later on in their career. So there are several facets of minimum wage which needs to be critically analyzed to have a clear idea of the overall effects of minimum wage on the Cambodian labor market. This report elaborates on each of these aspects to get a perspective about the Cambodian labor markets (Dube, 2010).

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ANALYSIS OF MINIMUM WAGE IMPLEMENTATION:

Over the years several economists and scholars have delved deep into the domain of the labor market supply and demand to find an optimal method of determining justifiable wages for them. These researches have influenced policymakers to go for minimum wage as a means to increase the income level of the workers and thus raising them from the level of poverty. Similar has been the case in Cambodia wherein the administrators have implemented minimum wages with the hope that the workers would get respectable wages to come out of poverty. However there are also several studies which reveal that there are numerous ill effects of implementing minimum wages which affect the unskilled workers.

Studies reveal that whenever there is an increase in wages or imposition of minimum wages there is a general tendency among the employers to either cut short the working hours of employees or cutting jobs and sometimes both in order to reduce the hourly labor expenditure. On the supply side as the wages are fixed at a higher level the number of people wanting to do a particular task also increases which results in a gap between the number of jobs available and the number of workers applying for that job. Both these factors lead to considerable unemployment and delay the entry of a youth into the workforce which in turn reduces his lifetime earnings. Apart from these there are considerable training programs that are planned for entry level workers which are mostly funded by the lower wages of the workforce (Doucouliagos, 2009). These trainings require an upfront investment and they provide necessary skills or expertise to the workforce which benefits them later on in their career. These trainings are also not provided in case of minimum wage which significantly hampers the growth opportunities of a particular labor. All these factors lead to reduced human capital accumulation and a significantly lower lifetime income. The unskilled labors are the most affected in the implementation of minimum wages. Moreover in the present context Cambodian products are more costly in the international market because of the considerable strength of the US Dollars. This has resulted in reduced demand for Cambodian products which in turn has led to a muted demand for the labor market as well. These factors taken together have adversely affected the unemployment level in Cambodia.

DISADVANTAGES OF MINIMUM WAGE:

There are several advantages and disadvantages of minimum wage which have been elaborated in this section. They are as follows:
Standard economic Theory – As per the traditional economic theory minimum wage is supposed to increase the income level of workers and therefore reduce poverty in the society through the process of providing more employment. However the below diagram explains how minimum wage increases unemployment by reducing employment opportunities.
The demand curve for baggers slopes downwards since the demand for employment in the bagger job reduces with higher prices. Up to a certain level they can adjust their costs by asking the customers to pack their own products or may be through automation like self-checkout lanes. The supply of baggers is upward slopping since it represents the fact that a higher wage attracts higher Cambodians to take up this job which results in a higher supply of workers. The two curves intersect at a point which gives the wage and employment level of grocery baggers that comes out to be W1 and E1, respectively. However, this condition should be viewed in a situation where there is no government intervention.
If we now consider the hypothetical situation that government or regulatory authorities impose a minimum wage in the grocery bagger labor market in Cambodia then it will lead to the situation wherein the minimum wage has to be above the W1 level, that is represented by the horizontal line in the figure which sets the minimum wage at Wm level. This will result in higher costs for the grocery store and as a reactionary measure the store will cut down on the jobs which will reduce employment to E2 level form E1 level.

EFFECT ON ON-THE-JOB TRAINING:

Building on the same example we can say that the grocery baggers who were previously entitled to some training through watching training videos or may be shadowing some senior grocery guys which might have the effect of reduced productivity on the part of the new employee will not be allowed. It leads to a loss of the economic benefit for the employee in the long term since he will not be able to charge a higher wage in the future because of his increased skills or expertise. The below figure explains the loss on the earnings of the worker because of the lost training opportunity (Baskaya, 2012).
The vertical axis which represents the earning represents the amount of earning in the entire career which remains the same or flat at the W1 level. However in case of Wt, the grocery provides lower wage during the time of training and allows the worker to gain experience in the work which significantly boosts the productivity of the worker in the latter part of the career. This increase in the productivity allows the worker to demand more wages which increase the lifetime earning opportunity for the worker. There is also the possibility that the worker increases the productivity without any formal training and therefore will earn a little higher than the normal worker without any training. However it should also be kept in mind that workers with on the job training will also has the opportunity for informal training which will increase his productivity. Therefore the advantage of informal training is always present in any work whether it provides formal training or not. All these factors will lead to the formally trained worker to have a steeper earning profile than the non-trained worker (Meer, 2015). This is one of the serious damages of the minimum wages on the Cambodian labor productivity which in turn affects the wages.

CONCLUSION:

This report delves deep into the various aspects of minimum wage with particular attention to the Cambodian market. Cambodian market is highly influenced by the dollar fluctuation and the international relations it maintains with the US. USA is the single biggest foreign market for Cambodia and now because US is improving its relation with Vietnam so that it can deal with China it is hurting the exporting capability of Cambodia. Ths products are costlier because of a stronger US currency. Adding onto that if the minimum wage is implemented then it will impact the unskilled job market in Cambodia in an extremely adverse way and add onto the economic inequality of the country. This report highlights these aspects of the minimum wage implementation in the Cambodian market with reference to the various theoretical frameworks and economical models. At last it is justified to mention that the report tries to develop a framework for analyzing the labor market in Cambodia which can be implemented in similar other geographies for academic purposes.

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Reference

Baskaya, Y. S. a. Y. R., 2012. Using Federal Minimum Wage Effects to Identify the Impact of Minimum Wages on Employment and Earnings across U.S. States, Istanbul: Central Bank of Turkey.
Doucouliagos, H. a. T. S., 2009. Publication Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis. British Journal of Industrial Relations, 47(2), pp. 406-428.
Dube, A. T. W. L. a. M. R., 2010. Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties. Review of Economics and Statistics, 92(4), pp. 945-964.
Meer, J. a. J. W., 2015. Effects of the Minimum Wage on Employment Dynamics. Journal of Human Resources, 62(2), pp. 42-50.
Neumark, D. a. W. W., 2007. Minimum Wages and Employment. Foundations and Trends in Microeconomics, 3(1-2), pp. 1-182.
Neumark, D. J. I. S. a. W. W., 2014. Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?” Industrial and Labor Relations. Industrial and Labor Relations Review, 67(Supplement), pp. 608-648.

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