Setting and adjusting the level may be the most challenging part of minimum wage determination in the lowest-paid jobs in the world. If this level is set too low, the minimum wage will have little effect on protecting workers from unduly low wages or poverty. If it is set too high, it will be poorly complied with or have negative effects on employment. How is this price determined in the lowest-paid jobs in the world? This article provides more information.
Research and Data Assessment
The minimum wage setting process encourages evidence-based deliberations. To this end, three types of analysis are relevant. The first involves tracking trends and outlooks of key labor, social, and economic indicators. This includes the share of workers affected by the minimum wage, the ratio of the minimum wage to average wages in the highest-paying jobs. It also includes productivity and GDP growth. The second involves simulating how different adjustments to the minimum price can affect key outcomes of interest such as:
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- employment;
- earnings;
- total labor costs;
- and production and informality.
The third involves conducting periodic assessments of the actual impact of previous adjustments on key indicators. This analysis is disaggregated to understand the likely impacts of a minimum wage adjustment on different types of workers and different sectors. However, for this to happen, stakeholders, both inside and outside each country, need access to timely and relevant data. This is a constraint in many countries.
In the case of minimum wage analysis, administrative data is particularly important. Data from surveys, employment records, and social security files, as well as tax records, can be more up-to-date. This data may be less affected by non-response or self-reporting outcomes and can allow for more disaggregated analysis.
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Special Considerations for Countries
For developing countries, informality and limited compliance present specific challenges in collecting evidence for setting the minimum wage. An increase in the price may lead to an increase in informality, which must be taken into account. Similarly, analyzing changes in the minimum wage is likely to affect compliance with regulations.
However, measuring informality and compliance is not an easy task. Survey data can capture the informal economy and non-compliance to some extent. But this data suffers from various biases. Data from labor inspections provide some evidence of compliance but are not representative, especially in developing countries.
To ensure a process that leads to a fair and effective minimum wage, countries engage in genuine social dialogue. They also commit to capacity building and the development and accessibility of data.
Adopting Balance Approaches
Setting the minimum wage in the lowest-paid jobs in the world is based on a balanced and evidence-based approach. Indeed, an appropriate balance between these two sets of considerations is essential to ensure that minimum prices are suited to the national context. This balance also takes into account the effective protection of workers and the development of sustainable businesses.
Furthermore, a fact-based approach also implies that there are clear criteria to guide discussions on the level of minimum wages. Commonly used statistical indicators include the overall level, as well as the distribution of wages. They also include differences in the cost of living between regions and national or sectoral levels of labor productivity.
To maintain their relevance, the price level is adjusted from time to time. If it is not, this can lead to an erosion of the purchasing power of workers earning the minimum. Additionally, the social and economic effects of minimum wages are never fully predictable. As a result, many countries monitor the impact of adjustments to the minimum wage and study it adequately.