Minimum Wage Affect The Elimination Of Income Inequality?

Introduction

The elimination of all forms of inequality was debatably the most important goal for people pre-democracy. After two decades of democracy, not only has the elimination of inequality not been achieved, but inequality has worsened. It is particularly known that South Africa has one of the highest Gini coefficients in the world,

The Gini Coefficient, Lorenz Curve & Theil Index

The Gini coefficient is a measure of income inequality as given by the formula:

Gini Coefficient = (Area between Lorenz curve and diagonal)/█(Total area below diagonal@)

In order to derive the Gini coefficient the Lorenz curve is used. As illustrated in Figure 1 below.

Figure 1: Lorenz curve for South Africa Source: Statistics South Africa, Income and

The program looks at decreasing short term poverty by giving the poor direct cash transfers as well as decreasing long term poverty by investing in human capital, through conditional cash transfers.

The impact of increases of the minimum wage on employment has been debated for decades and modern economists hold a different perspective to minimum wage increases which have always been said to have a negative employment effect. With the use of the Katz index, which is an economic indicator shown by the ratio of the nominal legal minimum wage to the average wage, this economic indicator may be used to determine whether the minimum wage is set too high or too low. If the minimum wage is set too low, employers may abuse their bargaining power in wage negotiations with lower skilled workers and pay them less than the marginal product of labour. Employers would be more inclined to hire more workers so that firms produce at optimal levels, although this may further increase inequality as profits may rise and are usually distributed among higher skilled workers. On the other hand, if minimum wages are too high, employment growth will be cut back as the neoclassical supply and demand curve illustrates above, holding other variables constant. A minimum wage policy should strike a balance between providing appropriate pay and increasing