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Geneva set to vote on world’s highest minimum wage

In May 2014, Switzerland voted against a minimum wage of CHF 22 an hour.

Geneva set to vote on world’s highest minimum wage

At some point voters in the canton of Geneva will get to vote on a similar initiative, which would apply only in the canton. Similar to the federal vote, which was rejected by 76.3% of Swiss voters, the plan calls for a minimum hourly wage of CHF 23 ($US 23.40). Based on a 40-hour week, this works out at around CHF 4,000 per month.

Vote organisers in Geneva collected 7,700 signatures, far more that the 5,227 minimum required.

A similar minimum wage vote succeeded in the canton Neuchâtel. In 2017, the canton introduced a minimum wage of CHF 19.70.

At a certain level, minimum wages are widely accepted as socially and economically desirable. If set too high economists start to worry about price elasticity and unemployment.

Price elasticity is the degree to which demand falls as the price rises. The prices of essential products with few substitutes, like electricity and supermarket food, can rise significantly before people cut consumption. Other products such as overseas holidays and restaurant dinners are elastic. Demand for these can fall quickly when prices rise.

High minimum wages risk an elastic response. When wages reach a certain level, employers may choose, or be forced to hire fewer people either by investing in people-replacing technology, moving jobs off-shore to cheaper locations, or making do with fewer staff. The risk is that overly high minimum wages lead to higher unemployment.

In May 2018, Neuchâtel (4.5%) and Geneva (4.3%) had Switzerland’s highest rates of unemployment. The national rate was 2.4%.

Employment elasticity is difficult to determine and varies significantly from job to job. In addition, there are many other drivers of unemployment beyond minimum wages. In the end it is difficult to know when minimum wages have entered the danger zone, but at some level, in some sectors, they will.

Jobs most at risk are certain positions in struggling sectors such as farming. At a certain wage level there just isn’t enough coming in to cover salaries and some will be forced to layoff workers or cut their hours.

A way to reduce this issue is to have different minimum wages for different sectors. To some extent Geneva already has this. It has specific minimum wages that apply only to domestic workers.

If the vote in Geneva succeeds, the canton will have the world’s highest general minimum wage, 17% higher than the current world leader: Neuchâtel.


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