1. Industrial and Employment Relations Minimum Wage
Master in
Industrial and Employment Relations
Minimum Wage
March 2017

2. Minimum Wage (MW)
Sets a wage floor applicable to wage earners, ensuring they receive a minimum level of pay protection. The payment below this wage is legally forbidden. Mostly affects the low end of the wage distribution. Varies across nations.

3. Minimum Wage
Intended to redistribute income to low-paid workers, reduce working poverty & to protect workers with little bargaining power.
Improve workers’ welfare.
Weak position of low-paid workers, especially in the presence of high unemployment.
prevent downward spiral of wage cuts among vulnerable workers.

4. Minimum Wage: do we support it. Why yes. Why not
Minimum Wage: do we support it? Why yes? Why not? Should it be lower for young people?

5. Minimum Wage
 If MW leads firms to employ fewer workers – its purpose is defeated
Young people are more likely to be affected by MW than others.
 But, increasing the minimum wage does not automatically reduce employment.

6. Minimum Wage: how is it fixed?
consultations, social factors, economic factors (inflation, growth...)  Different types of minimum wages ◦ National, legislated MW ◦ Industry/Occupational/Sectoral level MW ◦ MW as an outcome of collective bargaining agreements (and extended to all workers) ◦ Age MW (lower rates for youth...)

7. Minimum Wage: trade off
1) If it is ‘too low’…. 2) If it is ‘too high’….

8. Minimum Wage: trade off
1) If it is ‘too low’…. 2) If it is ‘too high’…. => The challenge: a minimum wage which offers real benefits to low-paid workers and avoids unnecessary risks to enterprises and jobs.

9. ILO Conventions and Recommendations
C131 - Minimum Wage Fixing Convention, 1970 (No. 131)
R135 - Minimum Wage Fixing Recommendation, 1970
Followed:
C026 Minimum Wage-Fixing Machinery Convention, 1928
R030 - Minimum Wage-Fixing Machinery Recommendation, 1928
C100 Equal Remuneration Convention, 1951
C099 Minimum Wage Fixing Machinery (Agriculture) Convention, 1951.

10. ILO Convention 131
Section 1
1. Each Member of the ILO which ratifies this Convention undertakes to establish a system of minimum wages which covers all groups of wage earners whose terms of employment are such that coverage would be appropriate.
2. The competent authority in each country shall, in agreement or after full consultation with the representative organizations of employers and workers concerned, where such exist, determine the groups of wage earners to be covered.
(…)

11. ILO Convention 131
Section 2
1. Minimum wages shall have the force of law and shall not be subject to abatement, and failure to apply them shall make the person or persons concerned liable to appropriate penal or other sanctions.
2. Subject to the provisions of paragraph 1 of this Article, the freedom of collective bargaining shall be fully respected.

12. ILO Convention 131
Section 2
The elements to be taken into consideration in determining the level of minimum wages shall, so far as possible and appropriate in relation to national practice and conditions, include--
(a) the needs of workers and their families, taking into account the general level of wages in the country, the cost of living, social security benefits, and the relative living standards of other social groups;
(b) economic factors, including the requirements of economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment.

13. Criteria to fix the MW Needs of workers and their families
◦ General level of wages ◦ Cost of living ◦ Social security benefits
◦ Relative living standards of other social groups
 Economic factors
◦ Requirement of economic development ◦ Levels of labour productivity ◦ Desirability of attaining a high level of employment.

15. ILO Recommendation 135
Section 1
1. Minimum wage fixing should constitute one element in a policy designed to overcome poverty and to ensure the satisfaction of the needs of all workers and their families.
2. The fundamental purpose of minimum wage fixing should be to give wage earners necessary social protection as regards minimum permissible levels of wages.

16. Section 2 (a) the needs of workers and their families;
ILO Recommendation 135
Section 2
. In determining the level of minimum wages, account should be taken of the following criteria, amongst others:
(a) the needs of workers and their families;
(b) the general level of wages in the country;
(c) the cost of living and changes therein;
(d) social security benefits;
(e) the relative living standards of other social groups;
(f) economic factors, including the requirements of economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment.

17. ILO Recommendation 135
Section 3
. 4. The number and groups of wage earners who are not covered in pursuance of Article 1 of the Minimum Wage Fixing Convention, 1970, should be kept to a minimum. 5.
(1) The system of minimum wages may be applied to the wage earners covered in pursuance of Article 1 of the Convention either by fixing a single minimum wage of general application or by fixing a series of minimum wages applying to particular groups of workers.
(2) A system based on a single minimum wage--
(a) need not be incompatible with the fixing of different rates of minimum wages in different regions or zones with a view to allowing for differences in costs of living;
(b) should not impair the effects of decisions, past or future, fixing minimum wages higher than the general minimum for particular groups of workers.

18. ILO Recommendation 135
Section 3
• 6. The minimum wage fixing machinery provided for in Article 4 of the Convention may take a variety of forms, such as the fixing of minimum wages by--
• (a) statute;
• (b) decisions of the competent authority, with or without formal provision for taking account of recommendations from other bodies;
• (c) decisions of wages boards or councils;
• (d) industrial or labour courts or tribunals; or
• (e) giving the force of law to provisions of collective agreements.

19. ILO Recommendation 135
Section 3
7. The consultation provided for in paragraph 2 of Article 4 of the Convention should include, in particular, consultation in regard to the following matters:
• (a) the selection and application of the criteria for determining the level of minimum wages;
• (b) the rate or rates of minimum wages to be fixed;
• (c) the adjustment from time to time of the rate or rates of minimum wages;
• (d) problems encountered in the enforcement of minimum wage legislation;
• (e) the collection of data and the carrying out of studies for the information of minimum wage fixing authorities.

20. Minimum Wage Key Features:
Fixing procedures (legislated or collectively bargained).
Coverage rate.
Eligibility.
Different minima (according to time frames).
Subminimum wage for specific groups. .

21. Minimum Wage (MW)
In developing countries with limited collective bargaining, with few low paid workers in the trade unions, plays an important role in protecting the purchasing power of low paid workers. It is a reference for other benefits. It is a de facto reference for salaries of informal workers.

22. Minimum Living Wage It takes into account: The needs of the family.
The number of wage earners.
The needs of the family derive from the poverty line and the average household size.

23. Ratio minimum wage / average wage*
Minimum Wage (MW)
Data.
Ratio minimum wage / average wage*
Share of workers at or near the minimum wage.
Frequency of its adjustment.
* The average wage may depend on the minimum wage

24. Minimum Wage (MW) / average wage

25. Minimum Wage (MW) / average wage

26. Minimum Wage average wage

27. Percentage of protected workers

28. Example of the impact of MW in a country with 1000 workers
Average salary 130 crowns Wage bill = 130,000 crowns Minimum wage 60 crowns Affects 10% of workers Average gap 20 crowns. Wage bill increases by 20 X 100 = 2000 In percentage terms 2000 / 130,000 = 1,54 %

29. Multiple MW in many countries, depending on:
Occupations Industries Geographical regions

30. The role of social partners in MW setting:
Taking part in consultations. Considering the coverage: who is out?. Considering enforcement: how to police it? It is a part of the total social bargaining.

31. The role of social partners in MW setting:
Minimum wage bargaining is not a substitute for normal industrial relations and wage negotiations. There is a risk when it becomes the only negotiation and there is not a well developed system of industrial relations. Most of workers should be protected by collective bargaining and right of association.

32. Minimum Wage Economics
In a competitive labour market it would reduce employment and increase the equilibrium wage level.

34. Minimum Wage Economics
In a more realistic non perfectly competitive labour market the result is less clear. e.g. --single buyer (monopsonist) of labour --dual market Anyway small effects on labour demand.

35. Minimum Wage Economics
The single buyer (monopsonist) of labour knows that if he employs the efficient quantity of workers its profit may decrease because she must pay all workers more. The rational choice may consist in hiring fewer workers. The minimum wage may eliminate this advantage and lead to hire more people.

36. Minimum Wage Economics
A possible effect on aggregate demand.

37. Minimum Wage Empirical Findings
Better enforced in urban setting. (Kenya) Affects a lot the bottom and less the rest. Affects even the informal economy. Positive effect on full time self employed men. (Costa Rica and Colombia) Incentive towards informality: no (Costa Rica) yes (Brazil) Insignificant effects on employment.

38. Minimum Wage Empirical Findings Effects on Employment

39. Minimum Wage Empirical Findings Effects on Youth Employment
“debate over the employment effects of the minimum wage is [essentially] a debate of values around zero” (Freeman, 1996).
estimates of the teenage employment elasticity with respect to the minimum wage range from below -1 to above 0 - but, on average they are small and (slightly) negative (Neumark & Wascher, 2007)

40. Minimum Wage Empirical Findings Effects on Employment
Minimum wages (and EPL) tend to encourage on- the-job training of young people and raise productivity (and profits)
Complementarities: any dis-employment effects of MW are reduced by strong EPL
On average, minimum wages do not discourage youth employment much. The case for lower MW for youth is not strong – it is debatable
Much variation in effects according to context.

41. Minimum Wage Empirical Findings
Few studies on income distribution and poverty. Few studies on development countries outside Latin America. Studies usually ignore interactions.

42. Thanks