I think (at least in the USA – where I am more familiar with the labor market) the worries of the low paying jobs being eliminated are exaggerated.  I do understand that minimum wage laws encourage employers to find ways to reduce the need for labor.  But the impact of that in reality is much less than the economist and pop-economist normally think.  If you however, put a huge increase into law then it could well create large disruption and job loss.

http://investing.curiouscatblog.net/2007/01/11/minimum-wage-example/

http://investing.curiouscatblog.net/2007/01/10/when-the-lowest-pay-rises-what-happens/

I’m also wondering if the population size has anything to do with introducing the minimum wage law. New Zealand’s population is around 4 million, and as such it does not have the capability to provide cheap labor and still be competitive in the world market.

Let me clarify that point further. If New Zealand is going to have a large enough purchasing power in the global market, it’s economy must have sufficient amount of reserve to back whatever investments it undertakes in the global market. And seeing that it has such a small population, having a high-cost economy (meaning the prices of goods are high, but so does the average salary) could help raise its reserve or asset to be on par with most other countries in the world.

As for Malaysia, one of our strong attractions for foreign direct investment is cheap labour, so a lot of multinational companies open up plants and factories in Malaysia (e.g. Intel, AMD, Samsung, etc.). In this case, introducing minimum wage law would possibly push Malaysian economy to be a high-cost economy, thereby eliminating cheap labour as a bargaining chip with the big multinationals. This will in turn cause those big multinationals to shy away from investing in Malaysia, which will ultimately result in the loss of thousands of jobs, even if they are low-paying jobs.
The probable reason why NZ can afford high-cost economy is because they are a developed country where the facilities are well-developed and there’s higher percentage of high-skilled workforce compared to Malaysia, where we are still finding our ways and developing our nation.

Does this make sense or am I talking rubbish? What do you think?

It depends on what type of jobs are on offer in NZ and Australia. If most of the jobs are of the highly-skilled type, then minimum wages will have an insignificant impact on the unemployment rate. We have this theory in economics which we called ‘efficiency wages’, where it was introduced by a Henry Ford for his production of Ford cars. He paid his workers $5/day back in 1910 (which amounts to about $3,000 in today’s dollars). He thinks that by keeping the wages high, he will get a good pool of highly-skilled workers and keep them motivated. By theory, workers know that if they made a mess of their high-paying job, they will get the sack, and will be replaced by those in-waiting who will definitely do a better job.

In economics, there will always be trade-offs. No matter how much we want the world to work in the most perfect conditions, it will continue to remain imperfect. Thus, it is about getting the maximum out of the scarce resources at hand. In the case of minimum wages, it sounds more like an ethical policy rather than an economic policy, as its main function is to protect workers from the unethical ways of big bosses who will reap the biggest profits available at the cheapest cost (in which, most businesses will think that way, unless they’re a non-profit organisation). Thus, I think more and more businesses wanted to be known as ethical as they want to draw customers to their brand and rather than going for short-term gain, they might rather go for long-term gain. In any business, establishing a good reputation is key to keeping customers loyal to their brand.

In the case of NZ and Australia, or any other country for that matter, minimum wage laws are certainly the way forward to help those low-paying workers escape poverty and unscrupulous business bosses. But of course, it depends on the job nature and type, how ethical businesses are, etc… There are many factors to consider before implementing minimum wage laws, which in reality, is hard to quantify the ideal minimum wage. If most of the businesses are paying their workers very well without the help of minimum wage laws, there’s just no point of implementing one.

So how does countries like New Zealand and Australia afford minimum wage laws without raising unemployment rate? Is there like a threshold unemployment rate below which it is acceptable?

If you were to draw the supply and demand diagram for labour in theory, there would of course be ‘full employment’ in equilibrium. Full employment here doesn’t mean that all of the potential working population are working. It’s just that the economy is already operating at the efficient level, which means that extra labour being hired would overheat the economy.

Now, let’s take the minimum wage laws into account. Using the same diagram, we draw the minimum wage line above the equilibrium point. Thus, what we have is that there will be more people making themselves available on the labour market, while at the same time, businesses are reducing their demand for labour because of the rising costs in hiring further labour. What happens when the supply of labour exceeds the demand for labour? Answer: Unemployment. Imagine those people who didn’t get the same job they’re aiming for.

However, I’m not saying that minimum wage laws are bad. Every policy will have benefits and drawbacks. And minimum wage laws are no different. The benefit of having minimum wage is that we will be able to curb the power of unscrupulous owners in business to ensure that the labour rights and their welfare are protected. Furthermore, the minimum wage law doesn’t affect those who had already earned a lot of income from high-paying jobs, such as chartered accountants and so forth. However, the downside of minimum wage is that it will create a large pool of unemployed people who are seeking jobs of the same nature. Those already in low-paying jobs (like the example you illustrated) would certainly be helped by the minimum wage laws coming into existence, such as a RM1,500 minimum wage in Malaysia for example.

However, it depends on the cost-benefit analysis whether minimum wage laws in Malaysia would bring more benefits than drawbacks to the country. For me, I am all for minimum wage laws to be implemented in the country. But then again, would there be Malaysians who are interested in taking up a garbage man job or a cleaners job, even if it pays a decent RM2,500 month (for example)? Then it would lead us to another topic on the attitude of Malaysians. ;P But don’t worry, I’ll just keep it short right here and discuss that another day, hehe. Hope my short analysis on minimum wage can help you understand a bit about minimum wage. =D