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Switzerland's $25 minimum wage wasn't such a crazy idea

If those horn players aren't getting paid well, the Swiss minimum wage proposal would have really helped them a lot.
If those horn players aren't getting paid well, the Swiss minimum wage proposal would have really helped them a lot.
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Over the weekend, the Swiss overwhelmingly rejected a minimum wage of 22 Swiss francs per hour, the equivalent of nearly 25 US dollars. More than three-quarters of Swiss voters nixed the proposal, according to Bloomberg.

To Americans, that might sound totally reasonable — our minimum wage is $7.25, and a proposal to raise it to $10.10 per hour is already controversial. A $25 wage, then, sounds utterly ridiculous.

Plus, if a $10.10 minimum wage would potentially push half a million people out of work, as the Congressional Budget Office has estimated, wouldn't a wage more than twice that high push millions out of their jobs?

But as it turns out, Switzerland's nearly $25 minimum wage proposal wouldn't exactly have paid workers nearly $25 per hour. When adjusting for purchasing power parity, the wage was $14 an hour, according to Bloomberg — still high by American standards, but not unheard-of: Seattle is planning to phase in a $15-per-hour minimum wage, for example.

This is another example of why purchasing power parity is important when considering price figures from other countries. As Matt Yglesias explained in April, exchange rates only go so far in converting one country's prices to another's. They can give you the US-dollar equivalent of what a franc is worth, but not of the difference between what you can buy with a dollar's worth of francs in Switzerland versus a dollar in the US.

It's similar to how earning $7.25 per hour in New York City is more painful than earning $7.25 in a cheaper place, like a small town in South Dakota — the cost of living in one place is far higher than the other. In other words, a dollar is not always a dollar, even in the US.

But the new Swiss minimum wage — which would have been the highest in the world — would also have been a big jump for a country that has no national minimum wage. And businesses in Switzerland made similar protests as those that US businesses make about new minimum wages: that is, that it would have forced them to hire less and even let workers go.

Corrected. This article initially said the proposed minimum wage was 23 Swiss francs.