Labor Leaders Furious After World Bank Recommends Ditching Minimum Wage

Bernie Sanders is preparing to release his version of the “jobs guarantee” that has become a fixture of the UK Labour Party’s platform under leader Jeremy Corbyn.

And although his office admits it hasn’t carried out a cost analysis for its visionary plan, Sanders says his goal is to guarantee a job (paying $15 an hour) in construction, health-care, education and a handful of other fields, to every American who wants one.

But while the socialist fervor unleashed by Sanders’s 2016 primary run shows little sign of abating, a draft report released by the World Bank shows just how misguided a “jobs guarantee” would be.


In the report, the World Bank proposes lowering minimum wage and easing restrictions on hiring and firing for employers to help prepare countries for the onslaught of robot labor that consultancies including McKinsey believe will kill 800 million jobs by 2030, according to the Guardian.

The World Bank is proposing lower minimum wages and greater hiring and firing powers for employers as part of a wide-ranging deregulation of labour markets deemed necessary to prepare countries for the changing nature of work.

A working draft of the bank’s flagship World Development Report – which will urge policy action from governments when it comes out in the autumn – says less “burdensome” regulations are needed so that firms can hire workers at lower cost. The controversial recommendations, which are aimed mainly at developing countries, have alarmed groups representing labour, which say they have so far been frozen out of the Bank’s consultation process.

Of course, anybody who has followed our coverage of minimum wage hikes in Ontario, Seattle (as well as McDonald’s workers’ “Fight for $15) would know that these types of government-mandated wage hikes often destroy more jobs than their backers realize. Furthermore, studies have found that mandated wage hikes disproportionately harm female and minority workers.


But despite all available empirical evidence, Labor organizations are slamming the World Bank for ignoring the harsh realities faced by workers every day.

Peter Bakvis, Washington representative for the International Trade Union Confederation, said the proposals were harmful, retrograde and out of synch with the shared-prosperity agenda put forward by the bank’s president Jim Yong Kim.

He added that the WDR’s vision of the future world of work would see firms relieved of the burden of contributing to social security, have the flexibility to pay wages as low as they wanted, and to fire at will. Unions would have a diminished role in new arrangements for “expanding workers’ voices.”

The paper “almost completely ignores workers’ rights, asymmetric power in the labour market and phenomena such as declining labour share in national income,” Bakvis said.

The International Labour Organisation has also expressed alarm at the proposals, which include the right for employers to opt out of paying minimum wages if they introduce profit-sharing schemes for their workers.

The WDR draft says: “High minimum wages, undue restrictions on hiring and firing, strict contract forms, all make workers more expensive vis-à-vis technology.”

The World Bank doesn’t focus solely on minimum wage. In addition to waiving the minimum wage, the NGO advocated loosening restrictions on hiring and firing employees to encourage companies to hire more Why? Because by making it more expensive to fire a worker, governments are making companies more risk-averse when hiring workers, too.

And while labor leaders are aghast at what they perceive as the World Bank arguing for labor-market deregulation, they’re apparently ignoring the researchers’ claim that labor market regulations – in their current form – only “protect the few who hold formal jobs while leaving out most workers.”

And what’s more, the World Bank is only advocating eliminating minimum wages for companies that agree to introduce profit-sharing arrangements for their employees – thereby better aligning the interests of labor with the interests of management.

The report is being prepared amid growing speculation about the impact of artificial intelligence and automation on employment and wages in future decades.

“Rapid changes to the nature of work put a premium on flexibility for firms to adjust their workforce, but also for those workers who benefit from more dynamic labor markets,” the draft says.

Bakvis said the draft “puts forward a policy programme of extensive labour market deregulation, including lower minimum wages, flexible dismissal procedures and UK-style zero-hours contracts. The resulting decline of workers’ incomes would be compensated in part by a basic level of social insurance to be financed largely by regressive consumption taxes.”

The paper says that labour regulations “protect the few who hold formal jobs while leaving out most workers” and the sort of social protection schemes that began with the German chancellor Otto von Bismarck in the late 19th century were not appropriate because they covered only a third of developing country populations.

A World Bank spokesman said: “To stimulate debate and draw attention to critical issues, the report will present a range of ideas for how governments can create the conditions for workers to benefit from huge shifts in technology, demographics, urbanisation and other factors.”

“To end poverty and boost shared prosperity, it’s vital that we consider new initiatives to meet the disruption that will surely come from these structural changes. We encourage and look forward to comments and an evidence-driven discussion on this important topic.”

Of course, this doesn’t make the idea any less toxic to the labor movement – though if they would only continue reading for a few more sentences, instead of becoming overwhelmed by sanctimonious anger after reading the phrase “lower the minimum wage”, maybe they’d understand that something is going to need to change in the labor market to accommodate the advent of the robot era.

And until we all agree on a solution, no proposal should be too profane to consider.

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