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136-552: A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century. Because minimum wages increase the cost of labor , companies often try to avoid minimum wage laws by using gig workers , by moving labor to locations with lower or nonexistent minimum wages, or by automating job functions . Minimum wage policies can vary significantly between countries or even within

272-561: A living wage ordinance in 2006, but it was vetoed by Mayor Richard M. Daley . Living wage laws typically cover only businesses that receive state assistance or have contracts with the government. In 2014, Wisconsin Service Employees International Union teamed up with public officials against legislation to eliminate local living wages. According to U.S. Department of Labor data, Wisconsin Jobs Now -

408-693: A "living wage", but that it should be voluntary for the private sector. Data published in late 2014 by New Policy Institute and Trust for London found 20% of employees in London were paid below the Living Wage Foundation's recommended living wage between 2011 and 2013. The proportion of residents paid less than this rate was highest in Newham (37%) and Brent (32%). Research by the Office for National Statistics in 2014 indicated that at that time

544-402: A 'just wage'. The concept of a just wage was related to that of just prices , which were those that allowed everyone access to necessities. Prices and wages that prevented access to necessities were considered unjust as they would imperil the virtue of those without access. In Wealth of Nations , Adam Smith recognized that rising real wages lead to the "improvement in the circumstances of

680-420: A 10 percent increase in the minimum wage caused a 1 percent decrease in teenage employment, and no change in the teenage unemployment rate. The study also found a small, but statistically significant, increase in unemployment for adults aged 20–24. Wellington (1991) updated Brown et al.'s research with data through 1986 to provide new estimates encompassing a period when the real (i.e., inflation-adjusted) value of

816-582: A 2019 report, the U.S. advocacy group National Low Income Housing Coalition calculated the necessary full-time hourly wage to spend 30% of income on rental of a fair-market, 2-bedroom apartment. Estimates range from a high of $ 36.82/hr in Hawaii (where minimum wage is $ 10.10/hr) to $ 14.26 in Arkansas (the lowest state, raising its minimum from $ 9.25 to $ 11/hr) and $ 9.59/hr in Puerto Rico (where minimum wage

952-442: A classical price floor on labor. Standard theory says that, if set above the equilibrium price, more labor will be willing to be provided by workers than will be demanded by employers, creating a surplus of labor, i.e. unemployment. The economic model of markets predicts the same of other commodities (like milk and wheat, for example): Artificially raising the price of the commodity tends to cause an increase in quantity supplied and

1088-478: A communal, or ' civic republicanism ', perspective. He sees the need for citizens to be connected to their community, and thus, sees individual and communal interests as inseparably bound. Two major problems that are antithetical to civic republicanism are poverty and inequality. A living wage is meant to address these by providing the material basis that allows individuals a degree of autonomy and prevents disproportionate income and wealth that would inevitably lead to

1224-464: A country, with different regions, sectors, or age groups having their own minimum wage rates. These variations are often influenced by factors such as the cost of living, regional economic conditions, and industry-specific factors. The movement for minimum wages was first motivated as a way to stop the exploitation of workers in sweatshops , by employers who were thought to have unfair bargaining power over them. Over time, minimum wages came to be seen as

1360-442: A decrease in quantity demanded. The result is a surplus of the commodity. When there is a wheat surplus, the government buys it. Since the government does not hire surplus labor, the labor surplus takes the form of unemployment, which tends to be higher with minimum wage laws than without them. The supply and demand model implies that by mandating a price floor above the equilibrium wage, minimum wage laws will cause unemployment. This

1496-413: A degree of wage-setting power over the market as a whole. Supporters of the minimum wage say it increases the standard of living of workers, reduces poverty , reduces inequality, and boosts morale. In contrast, opponents of the minimum wage say it increases poverty and unemployment because some low-wage workers "will be unable to find work ... [and] will be pushed into the ranks of the unemployed". "It

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1632-664: A follow-up comprehensive study after the increase confirmed a strong economy with increased employment above previous years in Florida and better than in the US as a whole. When it comes to on-the-job training, some believe the increase in wages is taken out of training expenses. A 2001 empirical study found that there is "no evidence that minimum wages reduce training, and little evidence that they tend to increase training." The Economist wrote in December 2013: "A minimum wage, providing it

1768-426: A formula that adjusts the minimum wage based on economic indicators, or having wage boards that determine minimum wages in consultation with representatives from employers, employees, and the government. Supply and demand models suggest that there may be employment losses from minimum wages; however, minimum wages can increase the efficiency of the labor market in monopsony scenarios, where individual employers have

1904-438: A higher minimum wage increases the wage rates of unskilled workers above the level that would be established by market forces, the quantity of unskilled workers employed will fall. The minimum wage will price the services of the least productive (and therefore lowest-wage) workers out of the market. … the direct results of minimum wage legislation are clearly mixed. Some workers, most likely those whose previous wages were closest to

2040-564: A living wage as the wage equivalent to the poverty line for a family of four. The income would have to allow the family to "secure food, shelter, clothing, health care, transportation and other necessities of living in modern society". The definition of a living wage used by the Greater London Authority (GLA) is the threshold wage, calculated as an income of 60% of the median, and an additional 15% to allow for unforeseen events. Living wage campaigns came about partially as

2176-439: A living wage can both enhance engagement and performance if implemented. In Australia , the 1907 Harvester Judgement ruled that an employer was obliged to pay his employees a wage that guaranteed them a standard of living which was reasonable for "a human being in a civilised community" to live in "frugal comfort estimated by current... standards," regardless of the employer's capacity to pay. Justice H. B. Higgins established

2312-559: A living wage in London was funded by the Trust for London and carried out by Queen Mary University of London . Further research was published in 2014 in a number of reports on the potential impact of raising the UK's statutory national minimum wage to the same level as the Living Wage Foundation's living wage recommendation. This included two reports funded by the Trust for London and carried out by

2448-513: A living wage in some local councils which it controls, such as in Birmingham and Cardiff councils. The Green Party also supports the introduction of a living wage, believing that the national minimum wage should be 60% of net national average earnings. Sinn Féin also supports the introduction of a living wage for Northern Ireland . Other supporters include The Guardian newspaper columnist Polly Toynbee , Church Action on Poverty ,

2584-407: A living wage is the idea that income is an important, though not exclusive, means for capabilities. The enhancement of people's capabilities allows them to better function both in society and as workers. These capabilities are further passed down from parents to children. Finally, Stabile analyses the lack of a living wage as the imposition of negative externalities on others. These externalities take

2720-729: A living wage to their staff, at a level somewhat higher than the statutory level. From September 2014 all NHS Wales staff have been paid a minimum of the "living wage" recommended by the Living Wage Commission. About 2,400 employees received an initial salary increase of up to £470 above the UK-wide Agenda for Change rates. As of 2006, U.S. cities with living wage laws include Santa Fe and Albuquerque in New Mexico ; San Francisco, California ; and Washington, D.C. The city of Chicago, Illinois , also passed

2856-416: A living wage, though it was not defined as such, can be traced back to the works of ancient Greek philosophers such as Plato and Aristotle . Both argued for an income that considers needs, particularly those that ensure the communal good. Aristotle saw self-sufficiency as a requirement for happiness which he defined as, 'that which on its own makes life worthy of choice and lacking in nothing'. As he placed

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2992-526: A minimum living wage. The law is designed to raise quality of life and stimulate local economy. Specifically the proposed act will guarantee that workers in large developmental projects will receive a wage of at least $ 10.00 an hour. The living wage will get indexed so that it keeps up with cost of living increases. Furthermore, the act will require that employees who do not receive health insurance from their employer will receive an additional $ 1.50 an hour to subsidize their healthcare expenses. Workers employed at

3128-443: A minimum wage law, such as Louisiana and Tennessee, and other states have minimum wages below the federal minimum wage such as Georgia and Wyoming, although the federal minimum wage is enforced in those states. Some jurisdictions allow employers to count tips given to their workers as credit towards the minimum wage levels. India was one of the first developing countries to introduce minimum wage policy in its law in 1948. However, it

3264-697: A minimum wage not only to support the worker, but to support their desired semi- and skilled laborers while forcing the undesired workers (including the idle, immigrants, women, racial minorities, and the disabled) out of the labor market. The result, over the longer term, would be to limit the nondesired workers' ability to earn money and have families, and thereby, remove them from the economists' ideal society. "It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country." President Franklin D. Roosevelt , 1933 The first modern national minimum wages were enacted by

3400-561: A minimum wage that applies to all workers, this equation completely determines the equilibrium value of the labor market tightness θ {\displaystyle \theta } . There are two conditions associated with the matching function: m ′ ( θ ) < 0 , [ θ m ( θ ) ] ′ > 0 {\displaystyle m'(\theta )<0,\quad [\theta m(\theta )]'>0} This implies that θ {\displaystyle \theta }

3536-475: A minimum wage was proposed as a means to make them pay fairly. Over time, the focus changed to helping people, especially families, become more self-sufficient. In the United States, the late 19th-century ideas for favoring a minimum wage also coincided with the eugenics movement . As a consequence, some economists at the time, including Royal Meeker and Henry Rogers Seager , argued for the adoption of

3672-552: A more limited sector of the population. It is estimated that workers who qualify for the living wage legislation are currently between 1-2% of the bottom quartile of wage distribution. Real life implications to living wage legislation is important to address. Raising wages can decrease job opportunities for low wage workers as it cuts costs for profit seeking organizations and companies. The pool gets smaller despite an increase in wage rates. Neumark and Adams, in their paper, "Do living wage ordinances reduce urban poverty?", state, "There

3808-449: A non-profit organization fighting inequality through higher wages - has received at least $ 2.5 million from SEIU organizations from 2011 to 2013. Although these ordinances are recent, a number of studies have attempted to measure the impact of these policies on wages and employment. Researchers have had difficulty measuring the impact of these policies because it is difficult to isolate a control group for comparison. A notable study defined

3944-598: A response to Reaganomics and Thatcherism in the US and UK, respectively, which shifted macroeconomic policy towards neoliberalism . A living wage, by increasing the purchasing power of low income workers, is supported by Keynesian and post-Keynesian economics, which focuses on stimulating demand in order to improve the state of the economy. "It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country." President Franklin D. Roosevelt , 1933 The concept of

4080-435: A result of intentional collusion between employers, or naturalistic factors such as segmented markets , search costs , information costs , imperfect mobility and the personal element of labor markets. Such a case is a type of market failure and results in workers being paid less than their marginal value. Under the monopsonistic assumption, an appropriately set minimum wage could increase both wages and employment, with

4216-407: A rights perspective. He considers a living wage to be a right that all labourers are entitled to from the 'common bounty of nature'. He argues that private ownership of resources precludes access to them by others who would need them to maintain themselves. As such, the obligation to fulfill the right of a living wage rests on the owners and employers of private resources. His argument goes beyond that

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4352-567: A societal fissure between the rich and poor. A living wage further allows for political participation by all classes of people which is required to prevent the political interests of the rich from undermining the needs of the poor. These arguments for a living wage, taken together, can be seen as necessary elements for 'social sustainability and cohesion'. Donald Stabile argues for a living wage based on moral economic thought and its related themes of sustainability, capability and externality . Broadly speaking, Stabile indicates that sustainability in

4488-484: A subsidized development will also be entitled to the living wage guarantee. Many city officials have opposed living wage requirements because they believe that they restrict business climate thus making cities less appealing to potential industries. Logistically cities must hire employees to administer the ordinance. Conversely advocates for the legislation have acknowledged that when wages aren't sufficient, low-wage workers are often forced to rely on public assistance in

4624-483: A subsidy for employers that allow them to pay low wages. This subsidy, taking the form of an externality, is of course paid for by society in the form of taxes. This thought is repeated by Grimshaw who argues that employers offset the social costs of maintaining their workforce through tax credits, housing, benefits and other wage subsidies. The issue was raised during the Democratic party primary election of 2016 in

4760-658: A trade-off for low- to high-skilled workers that when the minimum wage is increased GDP is more highly redistributed to high academia jobs. In another study, which shared authors with the above, published in the American Economic Review found that a large and persistent increase in the minimum wage in Hungary produced some disemployment, with the large majority of additional cost being passed on to consumers. The authors also found that firms began substituting capital for labor over time. A 2013 study published in

4896-405: A two-sector market, where "the self-employed, service workers, and farm workers are typically excluded from minimum-wage coverage ... [and with] one sector with minimum-wage coverage and the other without it [and possible mobility between the two]," is the basis for better analysis. Through this model, Fields shows the typical theoretical argument to be ambiguous and says "the predictions derived from

5032-405: A wage is more than just compensation for labour. It is a means of securing a living and it leads to public policies that address both the level of the wage and its decency. Contemporary research by Andrea Werner and Ming Lim has analyzed the works of John Ryan , Jerold Waltman and Donald Stabile for their philosophical and ethical insights on a living wage. John Ryan argues for a living wage from

5168-675: A wage of 7/- ( 7 shillings ) per day or 42/- per week as a 'fair and reasonable' minimum wage for unskilled workers. In Bangladesh, salaries are among the lowest in the world. During 2012 wages hovered around US$ 38 per month depending on the exchange rate. Studies by Professor Doug Miller during 2010 to 2012, have highlighted the evolving global trade practices in Towards Sustainable Labour Costing in UK Fashion Retail . This white paper published in 2013 by University of Manchester, appears to suggest that

5304-487: A wage should provide mere subsistence but that it should provide humans with the capabilities to 'develop within reasonable limits all [their] faculties, physical, intellectual, moral and spiritual.' A living wage for him is 'the amount of remuneration that is sufficient to maintain decently the laborer' . Jerold Waltman, in A Case for the Living Wage, argues for a living wage not based on individual rights but from

5440-535: A way to help lower-income families. Modern national laws enforcing compulsory union membership which prescribed minimum wages for their members were first passed in New Zealand in 1894. Although minimum wage laws are now in effect in many jurisdictions, differences of opinion exist about the benefits and drawbacks of a minimum wage. Additionally, minimum wage policies can be implemented through various methods, such as directly legislating specific wage rates, setting

5576-628: Is $ 7.25/hr). The Living Wage Campaign in the United Kingdom originated in London, where it was launched in 2001 by members of the community organisation London Citizens (now Citizens UK ). It engaged in a series of Living Wage campaigns and in 2005 the Greater London Authority established the Living Wage Unit to calculate the London Living Wage, although the authority had no power to enforce it. The London Living Wage

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5712-775: Is a decreasing function of the minimum wage w {\displaystyle w} , and so is the job finding rate α = θ m ( θ ) {\displaystyle \alpha =\theta m(\theta )} . A hike in the minimum wage degrades the profitability of a job, so firms post fewer vacancies and the job finding rate falls off. Now let's rewrite r V u {\displaystyle rV_{u}} to be: r V u = ( r + q ) z + θ m ( θ ) w r + q + θ m ( θ ) {\displaystyle rV_{u}={(r+q)z+\theta m(\theta )w \over {r+q+\theta m(\theta )}}} Using

5848-516: Is a serious national evil that any class of his Majesty's subjects should receive less than a living wage in return for their utmost exertions. It was formerly supposed that the working of the laws of supply and demand would naturally regulate or eliminate that evil ... [and] ... ultimately produce a fair price. Where ... you have a powerful organisation on both sides ... there you have a healthy bargaining ... . But where you have what we call sweated trades, you have no organisation, no parity of bargaining,

5984-570: Is a table of the hourly minimum wage (for adults), and the living wage recommended by the living wage campaign, for each year since 2014. It is calculated on the basis of the VPSJ’s Minimum Essential Standard of Living (MESL) research, and set by the Living Wage Technical Group, benchmarked against the cost of minimum standard of living . It is supported by the political parties Sinn Féin , Labour and

6120-409: Is already at or below the minimum wage, whereas in higher skill labor markets the equilibrium wage is too high for a change in minimum wage to affect employment. The supply and demand model predicts that raising the minimum wage helps workers whose wages are raised, and hurts people who are not hired (or lose their jobs) when companies cut back on employment. But proponents of the minimum wage hold that

6256-419: Is argued that government should in turn attempt to align the interests of those pursuing profits with the interests of the labor in order to produce societal advantages for the majority of society. Smith argued that higher productivity and overall growth led to higher wages that in turn led to greater benefits for society. Based on his writings, one can infer that Smith would support a living wage commensurate with

6392-413: Is because a greater number of people are willing to work at the higher wage while a smaller number of jobs will be available at the higher wage. Companies can be more selective in those whom they employ thus the least skilled and least experienced will typically be excluded. An imposition or increase of a minimum wage will generally only affect employment in the low-skill labor market, as the equilibrium wage

6528-449: Is because labor markets are monopsonistic and workers persistently lack bargaining power . When poorer workers have more to spend it stimulates effective aggregate demand for goods and services. The argument that a minimum wage decreases employment is based on a simple supply and demand model of the labor market. A number of economists, such as Pierangelo Garegnani , Robert L. Vienneau, and Arrigo Opocher and Ian Steedman , building on

6664-528: Is calculated by GLA Economics and the CRSP calculates the out-of-London Living Wage. Their recommended hourly rates for 2015 are £9.40 for London and £8.25 for the rest of the UK. These rates are updated annually in November. In January 2016 the Living Wage Foundation set up a new Living Wage Commission to oversee the calculation of the Living Wage rates in the UK. In 2012, research into the costs and benefits of

6800-472: Is considered the Catholic Church's first expression of a view supportive of a living wage. The church recognized that wages should be sufficient to support a family . This position has been widely supported by the church since that time, and has been reaffirmed by the papacy on multiple occasions, such as by Pope Pius XI in 1931 Quadragesimo anno and again in 1961, by Pope John XXIII writing in

6936-455: Is detrimental to employment and increases the unemployment rate. Economists disagree as to the measurable impact of minimum wages in practice. This disagreement usually takes the form of competing empirical tests of the elasticities of supply and demand in labor markets and the degree to which markets differ from the efficiency that models of perfect competition predict. Economists have done empirical studies on different aspects of

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7072-464: Is evidence that living wage ordinances modestly reduce the poverty rates in locations in which these ordinances are enacted. However, there is no evidence that state minimum wage laws do so." A study carried out in Hamilton, Canada by Zeng and Honig indicated that living wage workers have higher affective commitment and lower turnover intention. Workers paid a living wage were more likely to support

7208-400: Is forced to increase wages, management can pass on the increase in wage to consumers in the form of higher prices. Since demand for the product is highly inelastic, consumers continue to buy the product at the higher price and so the manager is not forced to lay off workers. Economist Paul Krugman argues this explanation neglects to explain why the firm was not charging this higher price absent

7344-473: Is known as the tipped minimum wage ), $ 16.28 per hour in the U.S. state of Washington , or £11.44 (for those aged 21+) in the United Kingdom—but also in terms of which pay period (for example Russia and China set monthly minimum wages) or the scope of coverage. Currently the United States federal minimum wage is $ 7.25 per hour, though most states have a higher minimum wage. However, some states do not have

7480-413: Is not set too high, could thus boost pay with no ill effects on jobs....America's federal minimum wage, at 38% of median income , is one of the rich world's lowest. Some studies find no harm to employment from federal or state minimum wages, others see a small one, but none finds any serious damage. ... High minimum wages, however, particularly in rigid labour markets, do appear to hit employment. France has

7616-540: Is one possible guideline for determining a target price floor, while a minimum wage is a policy to enforce a chosen price floor. In the United Kingdom and New Zealand , advocates define a living wage to mean that a person working 40 hours a week, with no additional income, should be able to afford the basics for a modest but decent life, such as, food , shelter , utilities , transport , health care , and child care . Living wage advocates have further defined

7752-725: Is rarely implemented, even by contractors of government agencies. In Mumbai , as of 2017, the minimum wage was Rs. 348/day. India also has one of the most complicated systems with more than 1,200 minimum wage rates depending on the geographical region. Customs, tight labor markets, and extra-legal pressures from governments or labor unions can each produce a de facto minimum wage. So can international public opinion, by pressuring multinational companies to pay Third World workers wages usually found in more industrialized countries. The latter situation in Southeast Asia and Latin America

7888-488: Is the elasticity of the matching function: η ( θ ) = − θ m ′ ( θ ) m ( θ ) ≡ − θ d d θ log ⁡ m ( θ ) {\displaystyle \eta (\theta )=-\theta {m'(\theta ) \over {m(\theta )}}\equiv -\theta {d \over {d\theta }}\log m(\theta )} This result shows that

8024-685: Is the cost of a vacant job and y {\displaystyle y} is the productivity. When the free entry condition Π v = 0 {\displaystyle \Pi _{v}=0} is satisfied, these two equalities yield the following relationship between the wage w {\displaystyle w} and labor market tightness θ {\displaystyle \theta } : h m ( θ ) = y − w r + q {\displaystyle {h \over {m(\theta )}}={y-w \over {r+q}}} If w {\displaystyle w} represents

8160-418: Is the optimal search effort. This implies that a wage increase drives up job search effort and, therefore, the job finding rate. Additionally, the unemployment rate u {\displaystyle u} at equilibrium is given by: u = q q + α ϵ {\displaystyle u={q \over {q+\alpha \epsilon }}} A hike in the wage, which increases

8296-419: Is therefore shown as a line moving down and to the right. Since higher wages increase the quantity supplied, the supply of labor curve is upward sloping, and is shown as a line moving up and to the right. If no minimum wage is in place, wages will adjust until the quantity of labor demanded is equal to quantity supplied, reaching equilibrium , where the supply and demand curves intersect. Minimum wage behaves as

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8432-602: The Institute for Public Policy Research (IPPR) and Resolution Foundation : "Beyond the Bottom Line" and "What Price a Living Wage?" Additionally, Landman Economics published "The Economic Impact of Extending the Living Wage to all Employees in the UK". A 2014 report by the Living Wage Commission, chaired by Doctor John Sentamu , the Archbishop of York , recommended that the UK government should pay its own workers

8568-511: The Science Direct journal agrees with the studies above as it describes that there is not a significant employment change due to increases in minimum wage. The study illustrates that there is not a-lot of national generalisability for minimum wage effects, studies done on one country often get generalised to others. Effect on employment can be low from minimum-wage policies, but these policies can also benefit welfare and poverty. In 1992,

8704-580: The Social Democrats , while Solidarity–People Before Profit recommend a living wage of €15. Aontú support a living wage, with different regional rates, and have also recommended a "living pension." It has been opposed by employers including Ibec and the Irish Small Firms Association (ISFA), while the supermarket chains Lidl and Aldi committed to pay all their employees the living wage in 2020. In 2021,

8840-644: The United Nations Universal Declaration of Human Rights states that "Everyone who works has the right to just and favourable remuneration ensuring for himself and for his family an existence worthy of human dignity." In addition to legislative acts, many corporations have adopted voluntary codes of conduct. The Sullivan Principles in South Africa are an example of a voluntary code of conduct that state that firms should compensate workers to at least cover their basic needs. In

8976-422: The minimum wage in that the latter can fail to meet the requirements for a basic quality of life , which leaves the worker to rely on government programs for additional income. Living wages have typically only been adopted in municipalities . In economic terms, a minimum wage is a price floor for labor created by a legal threshold, rather than a reservation wage created by price discovery . The living wage

9112-421: The "lower ranks of people" could secure the opportunity for higher wages and an acceptable standard of living. Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater part of

9248-561: The 30% that fall below the standard in the UK as a whole. This represents 3.5 million Londoners, an increase of 400,000 since 2010/11. The research highlights the need to improve incomes through better wages, mainly, the London Living Wage, to ensure more Londoners reach a decent standard of living. Ed Miliband , the leader of the Labour Party in opposition from 2010 until 2015, supported a living wage and proposed tax breaks for employers who adopted it. The Labour Party has implemented

9384-710: The April 1992 New Jersey increase, and again in November–December 1992, asking managers for data on the full-time equivalent staff level of their restaurants both times. Based on data from the employers' responses, the authors concluded that the increase in the minimum wage slightly increased employment in the New Jersey restaurants. Remuneration Remuneration is the pay or other financial compensation provided in exchange for an employee 's services performed (not to be confused with giving (away), or donating, or

9520-522: The Earned Income Tax Credit (EITC) in the United States, may be more effective in addressing poverty. The effectiveness of minimum wage policies in reducing income inequality and poverty remains a subject of ongoing debate and research. According to the supply and demand model of the labor market shown in many economics textbooks, increasing the minimum wage decreases the employment of minimum-wage workers. One such textbook states: If

9656-602: The European Union, 21 out of 27 member states currently have national minimum wages. Other countries, such as Sweden, Finland, Denmark, Switzerland, Austria, and Italy, have no minimum wage laws, but rely on employer groups and trade unions to set minimum earnings through collective bargaining. Minimum wage rates vary greatly across many different jurisdictions, not only in setting a particular amount of money—for example $ 7.25 per hour ($ 14,500 per year) under certain US state laws (or $ 2.13 for employees who receive tips, which

9792-579: The Low Pay Commission began to study the living wage, and to decide if there should be different living wages for different age categories or regions. Launched in 2009, Asia Floor Wage is a loose coalition of labour and other groups seeking to implement a Living Wage throughout Asia, with a particular focus on textile manufacturing . There are member associations in Bangladesh, Cambodia, Hong Kong S.A.R., India, Indonesia, Malaysia, Pakistan,

9928-571: The Philippines, Sri Lanka, Thailand and Turkey as well as supporters in Europe and North America. The campaign targets multinational employers who do not pay their developing world workers a living wage. The proposed law will inform tax-payers of where their investment dollars go and will hold developers to more stringent employment standards. The proposed act will require developers who receive substantial tax-payer funded subsidies to pay employees

10064-744: The Scottish Low Pay Unit, and Bloomsbury Fightback!. There has been an active living wage campaign in the Republic of Ireland since 2014. It is supported by The Vincentian Partnership for Social Justice (VPSJ), Nevin Economic Research Institute (NERI), TASC , Social Justice Ireland, UCD School of Social Policy, Social Work and Social Justice, SIPTU , Unite the Union and the Society of St Vincent de Paul . Below

10200-415: The United States, when presidential candidate Bernie Sanders mentioned that "struggling working families should not have to subsidise the wealthiest family in the country", and therefore, implied that the large retailer Walmart , who is owned by the wealthiest family in the country, was not paying fair wages and was being subsidised by taxpayers. Those in favor of living wage ordinances primarily research

10336-410: The act of providing to). A number of complementary benefits in addition to pay are increasingly popular remuneration mechanisms. Remuneration is one component of reward management . In the UK, it can also refer to the automatic division of profits attributable to members in a Limited Liability Partnership (LLP). Remuneration can include: For wage withholding purposes under U.S. income tax law,

10472-595: The century, attempts to control wages through collective agreement were made. It was not until the 1890s that the first modern legislative attempts to regulate minimum wages were seen in New Zealand and Australia. The movement for a minimum wage was initially focused on stopping sweatshop labor and controlling the proliferation of sweatshops in manufacturing industries. The sweatshops employed large numbers of women and young workers, paying them what were considered to be substandard wages. The sweatshop owners were thought to have unfair bargaining power over their employees, and

10608-573: The competition among buying organisation has implications to low wages in countries such as Bangladesh. It has laid down a road map to achieve sustainable wages. $ 14.57 (NZ$ 20.50 ) Municipal regulation of wage levels began in some towns in the British Isles in 1524. National minimum wage law began with Winston Churchill 's Trade Boards Act 1909 , and the Wages Councils Act 1945 set minimum wage standards in many sectors of

10744-586: The control group as the subset of cities that attempted to pass a living wage law but were unsuccessful. This comparison indicates that living wages raise the average wage level in cities. However, it reduces the likelihood of employment for individuals in the bottom percentile of wage distribution. Research shows that minimum wage laws and living wage legislation impact poverty differently: evidence demonstrates that living wage legislation reduces poverty. The parties impacted by minimum wage laws and living wage laws differ as living wage legislation generally applies to

10880-573: The discounted utilities are given by: r V e = w + q ( V u − V e ) r V u = max ϵ z − φ ( ϵ ) + α ϵ ( V e − V u ) {\displaystyle {\begin{aligned}rV_{e}&=w+q(V_{u}-V_{e})\\rV_{u}&=\max _{\epsilon }\;z-\varphi (\epsilon )+\alpha \epsilon (V_{e}-V_{u})\end{aligned}}} Therefore,

11016-546: The economy may require that people have the means for 'decent accommodation, transport, clothing and personal care'. He qualifies the statement as he sees individual necessities as contextual and therefore able to change over time, between cultures and under different macroeconomic circumstances. This suggests that the concept and definition of a living wage cannot be made objective over all places and in all times. Stabile's thoughts on capabilities make direct reference to Amartya Sen 's work on capability approach . The tie-in with

11152-492: The economy. Wages Councils were abolished in 1993 and subsequently replaced with a single statutory national minimum wage by the National Minimum Wage Act 1998 , which is still in force. The rates are reviewed each year by the country's Low Pay Commission . From 1 April 2016 the minimum wage has been paid as a mandatory National Living Wage for workers over 25. It was phased in between 2016 and 2020 and

11288-407: The encyclical Mater et magistra . More recently, Pope John Paul II wrote, "Hence in every case a just wage is the concrete means of verifying the whole socioeconomic system and, in any case, of checking that it is functioning justly." Different ideas on a living wage have been advanced by modern campaigns that have pushed for localities to adopt them. Supporters of a living wage have argued that

11424-1153: The expected utility of the job holder and the expected utility of the job seeker grows. In fact, this difference actually grows with the wage. To see this, take the difference of the two discounted utilities to find: ( r + q ) ( V e − V u ) = w − max ϵ [ z − φ ( ϵ ) + α ϵ ( V e − V u ) ] {\displaystyle (r+q)(V_{e}-V_{u})=w-\max _{\epsilon }\left[z-\varphi (\epsilon )+\alpha \epsilon (V_{e}-V_{u})\right]} Then differentiating with respect to w {\displaystyle w} and rearranging gives us: d d w ( V e − V u ) = 1 r + q + α ϵ ∗ > 0 {\displaystyle {d \over {dw}}(V_{e}-V_{u})={1 \over {r+q+\alpha \epsilon ^{*}}}>0} where ϵ ∗ {\displaystyle \epsilon ^{*}}

11560-546: The expected utility of unemployed workers is maximized when the minimum wage is set at a level that corresponds to the wage level of the decentralized economy in which the bargaining power parameter is equal to the elasticity η ( θ ) {\displaystyle \eta (\theta )} .  The level of the negotiated wage is w ∗ {\displaystyle w^{*}} . If w < w ∗ {\displaystyle w<w^{*}} , then an increase in

11696-481: The five years subsequent to the wage increase. However, it did find disemployment in 'tradable' sectors, defined as those sectors most reliant on entry-level or low-skilled labor. A 2018 study published by the university of California agrees with the study in the Quarterly Journal of Economics and discusses how minimum wages actually cause fewer jobs for low-skilled workers. Within the article it discusses

11832-416: The form of depleting the stock of workers by 'exploiting and exhausting the workforce'. This leads to economic inefficiency as businesses end up overproducing their products due to not paying the full cost of labour. Other contemporary accounts have taken up the theme of externalities arising due to a lack of living wage. Muilenburg and Singh see welfare programs, such as housing and school meals, as being

11968-469: The good employer is undercut by the bad, and the bad employer is undercut by the worst ... where those conditions prevail you have not a condition of progress, but a condition of progressive degeneration." Winston Churchill MP , Trade Boards Bill , Hansard House of Commons (28 April 1909) vol 4, col 388 Modern minimum wage laws trace their origin to the Ordinance of Labourers (1349), which

12104-548: The government recognition of unions which in turn established minimum wage policy among their members, as in New Zealand in 1894 , followed by Australia in 1896 and the United Kingdom in 1909 . In the United States, statutory minimum wages were first introduced nationally in 1938 , and they were reintroduced and expanded in the United Kingdom in 1998 . There is now legislation or binding collective bargaining regarding minimum wage in more than 90 percent of all countries. In

12240-528: The increase is too small to matter. He admits that he does not know if these are correct, but argues that "the list demonstrates that one can accept the new empirical findings and still be a card-carrying economist." The following mathematical models are more quantitative in orientation, and highlight some of the difficulties in determining the impact of the minimum wage on labor market outcomes. Specifically, these models focus on labor markets with frictions and may result in positive or negative outcomes from raising

12376-401: The interests of labor and the interests of land with overarching societal interests. He reasoned that as wages and rents rise, as a result of higher productivity, societal growth will occur thus increasing the quality of life for the greater part of its members. Like Smith, supporters of a living wage argue that the greater good for society is achieved through higher wages and a living wage. It

12512-717: The job finding rate. The profits Π e {\displaystyle \Pi _{e}} and Π v {\displaystyle \Pi _{v}} expected from a filled job and a vacant one are: r Π e = y − w + q ( Π v − Π e ) , r Π v = − h + m ( θ ) ( Π e − Π v ) {\displaystyle r\Pi _{e}=y-w+q(\Pi _{v}-\Pi _{e}),\quad r\Pi _{v}=-h+m(\theta )(\Pi _{e}-\Pi _{v})} where h {\displaystyle h}

12648-522: The labor market tightness, it follows that: [ 1 − η ( θ ) ] ( y − z ) r + q + η ( θ ) θ m ( θ ) = h m ( θ ) {\displaystyle {[1-\eta (\theta )](y-z) \over {r+q+\eta (\theta )\theta m(\theta )}}={h \over {m(\theta )}}} where η ( θ ) {\displaystyle \eta (\theta )}

12784-756: The labor market. In the basic search and matching model , the expected utility of unemployed persons V u {\displaystyle V_{u}} and that of employed persons V e {\displaystyle V_{e}} are defined by: r V e = w + q ( V u − V e ) r V u = z + θ m ( θ ) ( V e − V u ) {\displaystyle {\begin{aligned}rV_{e}&=w+q(V_{u}-V_{e})\\rV_{u}&=z+\theta m(\theta )(V_{e}-V_{u})\end{aligned}}} Let w {\displaystyle w} be

12920-429: The lower ranks of people" and are therefore an advantage to society. Growth and a system of liberty were the means by which the laboring poor were able to secure higher wages and an acceptable standard of living. Rising real wages are secured by growth through increasing productivity against stable price levels, i.e. prices not affected by inflation. A system of liberty, secured through political institutions whereupon even

13056-685: The maximum wage, also began to set formal minimum wages. The practice was eventually formalized with the passage of the Act Fixing a Minimum Wage in 1604 by King James I for workers in the textile industry. By the early 19th century, the Statutes of Labourers was repealed as the increasingly capitalistic United Kingdom embraced laissez-faire policies which disfavored regulations of wages (whether upper or lower limits). The subsequent 19th century saw significant labor unrest affect many industrial nations. As trade unions were decriminalized during

13192-442: The members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged. Based on these writings, Smith advocated that labor should receive an equitable share of what labor produces. For Smith, this equitable share amounted to more than subsistence. Smith equated

13328-751: The minimum wage can help reduce income disparities, enabling low-income workers to afford basic necessities and contribute to the overall economy. Higher minimum wages may also have a ripple effect, pushing up wages for those earning slightly above the minimum wage. However, opponents contend that minimum wage increases can lead to job losses, particularly for low-skilled and entry-level workers, as businesses may be unable to afford higher labor costs and may respond by cutting jobs or hours. They also argue that minimum wage increases may not effectively target those living in poverty, as many minimum wage earners are secondary earners in households with higher incomes. Some studies suggest that targeted income support programs, such as

13464-543: The minimum wage in New Jersey increased from $ 4.25 to $ 5.05 per hour (an 18.8% increase), while in the adjacent state of Pennsylvania it remained at $ 4.25. David Card and Alan Krueger gathered information on fast food restaurants in New Jersey and eastern Pennsylvania in an attempt to see what effect this increase had on employment within New Jersey via a Difference in differences model. A basic supply and demand model predicts that relative employment should have decreased in New Jersey. Card and Krueger surveyed employers before

13600-418: The minimum wage increases participation and the unemployment rate, with an ambiguous impact on employment. When the bargaining power of workers is less than η ( θ ) {\displaystyle \eta (\theta )} , an increase in the minimum wage improves the welfare of the unemployed – this suggests that minimum wage hikes can improve labor market efficiency, at least up to

13736-409: The minimum wage was declining, because it had not increased since 1981. She found that a 10% increase in the minimum wage decreased the absolute teenage employment by 0.6%, with no effect on the teen or young adult unemployment rates. Some research suggests that the unemployment effects of small minimum wage increases are dominated by other factors. In Florida, where voters approved an increase in 2004,

13872-420: The minimum wage, depending on the circumstances. Assume that the decision to participate in the labor market results from a trade-off between being an unemployed job seeker and not participating at all. All individuals whose expected utility outside the labor market is less than the expected utility of an unemployed person V u {\displaystyle V_{u}} decide to participate in

14008-478: The minimum wage, including: Until the mid-1990s, a general consensus existed among economists–both conservative and liberal–that the minimum wage reduced employment, especially among younger and low-skill workers. In addition to the basic supply-demand intuition, there were a number of empirical studies that supported this view. For example, Edward Gramlich in 1976 found that many of the benefits went to higher income families, and that teenagers were made worse off by

14144-399: The minimum wage. Three other possible reasons minimum wages do not affect employment were suggested by Alan Blinder : higher wages may reduce turnover , and hence training costs; raising the minimum wage may "render moot" the potential problem of recruiting workers at a higher wage than current workers; and minimum wage workers might represent such a small proportion of a business' cost that

14280-514: The minimum, will enjoy higher wages. Others, particularly those with the lowest prelegislation wage rates, will be unable to find work. They will be pushed into the ranks of the unemployed. A firm's cost is an increasing function of the wage rate. The higher the wage rate, the fewer hours an employer will demand of employees. This is because, as the wage rate rises, it becomes more expensive for firms to hire workers and so firms hire fewer workers (or hire them for fewer hours). The demand of labor curve

14416-402: The negative impacts of insufficient minimum wages. In a cross-comparison between minimum wage and living wage ordinances, there are profound psychological impacts to living wage implementations. Those in favor of living wage oriented policies assert that it is important to acknowledge the region-specific costs that is severely lacking in minimum wage measurements. This line of thinking argues that

14552-425: The new statutory minimum wage, or slightly more. Among workers and their representatives, political considerations weigh in as labor leaders seek to win support by demanding the highest possible rate. Other concerns include purchasing power , inflation indexing and standardized working hours. Minimum wage policies have been debated for their impact on income inequality and poverty levels. Proponents argue that raising

14688-462: The number and trend of bankruptcies; economic freedom rankings; standards of living and the prevailing average wage rate. In the business sector, concerns include the expected increased cost of doing business, threats to profitability, rising levels of unemployment (and subsequent higher government expenditure on welfare benefits raising tax rates), and the possible knock-on effects to the wages of more experienced workers who might already be earning

14824-422: The optimal level being equal to the marginal product of labor . This view emphasizes the role of minimum wages as a market regulation policy akin to antitrust policies, as opposed to an illusory " free lunch " for low-wage workers. Another reason minimum wage may not affect employment in certain industries is that the demand for the product the employees produce is highly inelastic . For example, if management

14960-405: The optimal search effort is such that the marginal cost of performing the search is equation to the marginal return: φ ′ ( ϵ ) = α ( V e − V u ) {\displaystyle \varphi '(\epsilon )=\alpha (V_{e}-V_{u})} This implies that the optimal search effort increases as the difference between

15096-627: The ordinance, such as the Statute of Labourers (1351), increased the penalties for paying a wage above the set rates. While the laws governing wages initially set a ceiling on compensation, they were eventually used to set a living wage . An amendment to the Statute of Labourers in 1389 effectively fixed wages to the price of food. As time passed, the Justice of the Peace , who was charged with setting

15232-667: The organization they work for in various ways including: "protecting the organizations public image, helping colleagues solve problems, improving their skills and techniques, providing suggestions or advice to a management team, and caring about the organization." The authors interpret these finding through social exchange theory , which points out the mutual obligation employers and employees feel towards each other when employees perceive they are provided favorable treatment. As of 2003, there are 122 living wage ordinances in American cities and an additional 75 under discussion. Article 23 of

15368-408: The overall growth of the economy. This, in turn, would lead to more happiness and joy for people, while helping to keep families and people out of poverty. Political institutions can create a system of liberty for individuals to ensure opportunity for higher wages through higher production and thus stable growth for society. In 1891, Pope Leo XIII issued a papal bull entitled Rerum novarum , which

15504-494: The point when bargaining power equals η ( θ ) {\displaystyle \eta (\theta )} . On the other hand, if w ≥ w ∗ {\displaystyle w\geq w^{*}} , any increases in the minimum wage entails a decline in labor market participation and an increase in unemployment. In the model just presented, the minimum wage always increases unemployment. This result does not necessarily hold when

15640-425: The policy of increased labor market flexibility , including the reduction of minimum wages, does not have an "intellectually coherent" argument in economic theory. Gary Fields, Professor of Labor Economics and Economics at Cornell University , argues that the standard textbook model for the minimum wage is ambiguous, and that the standard theoretical arguments incorrectly measure only a one-sector market. Fields says

15776-400: The proportion of jobs outside London paying less than the living wage was 23%. The equivalent figure within London was 19%. Research by Loughborough University, commissioned by Trust for London, shows 4 in 10 Londoners cannot afford a decent standard of living - that is one that allows them to meet their basic needs and participate in society at a minimum level. This is significantly higher than

15912-591: The relationship between the wage and labor market tightness to eliminate the wage from the last equation gives us: r V u = θ m ( θ ) y + ( r + q ) z − θ ( r + q ) h r + q + θ m ( θ ) {\displaystyle rV_{u}={\theta m(\theta )y+(r+q)z-\theta (r+q)h \over {r+q+\theta m(\theta )}}} By maximizing r V u {\displaystyle rV_{u}} in this equation, with respect to

16048-488: The responsibility in ensuring that the poor could earn a sustainable living in the state, his ideas are seen as an early example of support for a living wage. "Everyone who works has the right to just and favourable remuneration ensuring for himself and for his family an existence worthy of human dignity." Universal Declaration of Human Rights , Art. 23 Sec. 3 The evolution of the concept can be seen later on in medieval scholars such as Thomas Aquinas who argued for

16184-407: The rich world's highest wage floor, at more than 60% of the median for adults and a far bigger fraction of the typical wage for the young. This helps explain why France also has shockingly high rates of youth unemployment: 26% for 15- to 24-year-olds." A 2019 study in the Quarterly Journal of Economics found that minimum wage increases did not have an impact on the overall number of low-wage jobs in

16320-417: The search effort and the job finding rate, decreases the unemployment rate. So it is possible that a hike in the minimum wage may , by boosting the search effort of job seekers, boost employment. Taken in sum with the previous section, the minimum wage in labor markets with frictions can improve employment and decrease the unemployment rate when it is sufficiently low. However, a high minimum wage

16456-432: The search effort of workers is endogenous . Consider a model where the intensity of the job search is designated by the scalar ϵ {\displaystyle \epsilon } , which can be interpreted as the amount of time and/or intensity of the effort devoted to search. Assume that the arrival rate of job offers is α ϵ {\displaystyle \alpha \epsilon } and that

16592-533: The simple supply and demand diagram, it was commonly found that teenagers withdrew from the labor force in response to the minimum wage, which produced the possibility of equal reductions in the supply as well as the demand for labor at a higher minimum wage and hence no impact on the unemployment rate. Using a variety of specifications of the employment and unemployment equations (using ordinary least squares vs. generalized least squares regression procedures , and linear vs. logarithmic specifications), they found that

16728-402: The situation is much more complicated than the model can account for. One complicating factor is possible monopsony in the labor market, whereby the individual employer has some market power in determining wages paid. Thus it is at least theoretically possible that the minimum wage may boost employment. Though single employer market power is unlikely to exist in most labor markets in the sense of

16864-417: The table below, cross national comparable living wages were estimated for twelve countries and reported in local currencies and purchasing power parity (PPP). Living wage estimates for the year 2000 range from US$ 1.7 PPP per hour, in low-income examples, to approximately US$ 11.6 PPP per hour, in high-income examples. Living wage estimates vary considerably by area, and may be calculated in different ways. In

17000-459: The term "wage" means remuneration (with certain exceptions) for services performed by an employee for an employer. Under the faithless servant doctrine, a doctrine under the laws of a number of states in the United States, and most notably New York State law , an employee who acts unfaithfully towards his or her employer must forfeit all remuneration received during the period of disloyalty. Living wage The living wage differs from

17136-431: The textbook model definitely do not carry over to the two-sector case. Therefore, since a non-covered sector exists nearly everywhere, the predictions of the textbook model simply cannot be relied on." An alternate view of the labor market has low-wage labor markets characterized as monopsonistic competition wherein buyers (employers) have significantly more market power than do sellers (workers). This monopsony could be

17272-434: The traditional ' company town ,' asymmetric information, imperfect mobility, and the personal element of the labor transaction give some degree of wage-setting power to most firms. Modern economic theory predicts that although an excessive minimum wage may raise unemployment as it fixes a price above most demand for labor, a minimum wage at a more reasonable level can increase employment, and enhance growth and efficiency. This

17408-429: The unemployment associated with the minimum wage. Brown et al. (1983) noted that time series studies to that point had found that for a 10 percent increase in the minimum wage, there was a decrease in teenage employment of 1–3 percent. However, the studies found wider variation, from 0 to over 3 percent, in their estimates for the effect on teenage unemployment (teenagers without a job and looking for one). In contrast to

17544-433: The wage distribution is degenerated to a single wage w {\displaystyle w} . Denote φ ( ϵ ) {\displaystyle \varphi (\epsilon )} to be the cost arising from the search effort, with φ ′ > 0 , φ ″ > 0 {\displaystyle \varphi '>0,\;\varphi ''>0} . Then

17680-432: The wage, r {\displaystyle r} the interest rate, z {\displaystyle z} the instantaneous income of unemployed persons, q {\displaystyle q} the exogenous job destruction rate, θ {\displaystyle \theta } the labor market tightness, and θ m ( θ ) {\displaystyle \theta m(\theta )}

17816-686: The whole of the UK independent of the higher living costs in London. In 2011 the CRSP used the MIS as the basis for developing a standard model for setting the UK Living Wage outside of London. Citizens UK , a nationwide community organising institution developed out of London Citizens, launched the Living Wage Foundation and Living Wage Employer mark. Since 2011, the Living Wage Foundation has accredited thousands of employers that pay its proposed living wage. The living wage in London

17952-427: The work of Piero Sraffa , argue that that model, even given all its assumptions, is logically incoherent. Michael Anyadike-Danes and Wynne Godley argue, based on simulation results, that little of the empirical work done with the textbook model constitutes a potentially falsifiable theory , and consequently empirical evidence hardly exists for that model. Graham White argues, partially on the basis of Sraffianism, that

18088-473: Was a decree by King Edward III that set a maximum wage for laborers in medieval England . Edward, who was a wealthy landowner, was dependent, like his lords, on serfs to work the land. In the autumn of 1348, the Black Plague reached England and decimated the population. The severe shortage of labor caused wages to soar and encouraged King Edward III to set a wage ceiling. Subsequent amendments to

18224-560: Was developed in 2008 when Trust for London awarded a grant of over £1 million for campaigning, research and an employer accreditation scheme. The Living Wage campaign subsequently grew into a national movement with local campaigns across the UK. The Joseph Rowntree Foundation funded the Centre for Research in Social Policy (CRSP) at Loughborough University to calculate a UK-wide Minimum Income Standard (MIS) figure, an average across

18360-599: Was publicized in the 2000s, but it existed with companies in West Africa in the middle of the 20th century. Among the indicators that might be used to establish an initial minimum wage rate are ones that minimize the loss of jobs while preserving international competitiveness. Among these are general economic conditions as measured by real and nominal gross domestic product; inflation; labor supply and demand; wage levels, distribution and differentials; employment terms; productivity growth; labor costs; business operating costs;

18496-443: Was set at a significantly higher level than previous minimum wage rates. By 2020 it was expected to have risen to at least £9 per hour and represent a full-time annual pay equivalent to 60% of the median UK earnings. In practice the level remained below £9 per hour until 2022. The National Living Wage is nevertheless lower than the value of the Living Wage calculated by the Living Wage Foundation . Some organisations voluntarily pay

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