TITLE:
Labor Productivity vs. Minimum Wage Level
AUTHORS:
Mieczysław Dobija
KEYWORDS:
Capital, Human Capital, Minimum Wage, Constant Pay, Labor Productivity
JOURNAL NAME:
Modern Economy,
Vol.2 No.5,
November
25,
2011
ABSTRACT: Recognition of the abstract nature of capital has liberated some new possibilities for alternative human capital research. Human capital, that is to say the human ability of doing work, is under the authority of all fundamental laws established in respect of the general notion of capital as spontaneous, and possessing random diffusion and limited growth. The phenomenon of human capital’s natural dispersion is a starting point for the theory of minimum wage, which ought to be sufficient to counterbalance the natural thinning out of the initial human capital of an employee. In practice, the legal minimum wage is fixed at different levels, and sometimes it is very low. Labor productivity is one fundamental factor that enables the establishment of a proper minimum wage level. Each human capital is vanquished by spontaneous and random diffusion, which averages 8% of the initial capital. Therefore the 8% rule is applicable to each employee no matter how educated and experienced he or she is. The results show that the level and fairness of the legal minimum wages is conditioned by labor productivity measured by ratio Q. This ratio should be at least 3.0 so the minimum wage could set off spontaneous random diffusion of employee’s human capital.