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uneven playing field and drive more workers to less regulated,
informal sectors. Dr. Rani outlined four main factors in creating
an effective minimum wage policy. The first question she asks
is simply, “Who does it cover?” If a minimum wage only applies
to a part of the population then it can actually be more difficult
to enforce. Secondly, “How complex is the system?” The more
complex a system, the more challenging enforcement can
be for government officials. It is for these reasons that Brazil’s
system has a high level of compliance; the system is simple and
applies to everyone. The reasonability of the minimum wage
level is also an important factor, as compliance improves if the
minimum wage is set at a lower level. Finally, the impact of
unions as in Brazil or civil society in India or even the awareness
campaigns of Costa Rica all help the government to encourage
compliance. Prof. Bhorat added that larger firms and those
closer to city centers are more likely to comply. Government
investment in enforcement and advertising campaigns also can
have a large impact.
Finally, the panelists discussed the available evidence on the
impacts of minimum wages on employment, wages, and
inequality. Prof. Lin reported that his research found that
minimum wages in China reduced employment for younger
workers, women, and those with less education, but also raised
wages and reduced inequality. According to Prof. Bhorat’s
research on South Africa, minimum wages had a negative
employment effect in agriculture, but not on other sectors.
One concern of minimum wage policy is that workers will be
forced to move from the formal, regulated sector to the informal
sector, putting downward pressure on wages in the informal
sector. However, Dr. del Carpio pointed out that in a number
of countries, it has been found that minimum wages actually
increase informal wages through a “lighthouse effect” in which
the minimum wage becomes a reference wage demanded by
workers in the informal sector as well.
Although they came from different countries and academic
backgrounds, the panelists all agreed that understanding
the impact of minimum wages on inequality is much more
complicated then it seems. While minimum wages raise wages
for employed workers at the bottom of the wage distribution,
there can also be negative employment effects as well as
unintended groups affected by such policies, such as low-wage
workers who may not necessarily belong to poor households.
More study is required. As Dr. del Carpio noted towards the
end of the conversation, the minimum wage by itself cannot
be expected to end inequality, but rather just one of the many
tools countries use to that end.
Albert Park
, Director of HKUST IEMS, moderated this online
discussion about the effectiveness of minimum wage policies
in reducing inequality in developing countries and emerging
markets. He began by noting that much has been written
about the impact of minimum wage legislation in developed
countries, but to date there is relatively little evidence on
their impacts in less advanced countries. The goal of the
discussion was to shed new light on the subject by talking with
leading international experts who understand how minimum
wage policies have been implemented in different parts of
the world. The four distinguished panelists were
Carl Lin
,
Assistant Professor of Economics at Beijing Normal University;
Haroon Bhorat
, Director of the Development Policy Research
Unit (DPRU) at the University of Cape Town;
Ximena del
Carpio
, Senior Economist at the World Bank; and
Uma Rani
,
Senior Development Economist at the International Labour
Organization in Geneva.
The first part of the discussion focused on how minimum
wages are set in different countries. Prof. Lin explained that
China’s minimum wage policy only began in 1994, with a
major strengthening of the regulations in 2004 mandating
that minimum wages be updated every two years, with local,
city, and even county governments having the authority to set
minimum wage levels covering all workers in their jurisdiction.
As introduced by Prof. Bhorat, in South Africa, collective
bargaining plays a major role in minimum wage setting, with
different minimum wages set for different industries, regions,
and even firms of different sizes. India was one of the first
Asian countries to set a minimum wage, in 1948. According
to Dr. Rani, committees at the state and national level with
representatives of different stakeholders make recommendations
on minimum wage levels based on economic conditions and
the needs of workers. There are over 1000 minimum wages that
vary by location, education, skill level, industry, etc., making the
system very complicated.
Ximena del Carpio, World Bank Senior Economist, discussed the
advantages and disadvantages of having different minimum
wages based on sector or region. She noted that although
it is appealing to tailor minimum wages to specific groups
of workers or specific situations, a major disadvantage of
having multiple minimum wages for different types of jobs is
that it creates an uneven playing field that can give workers
distorted incentives to shift across sectors, occupations, or
regions. Dr. del Carpio also pointed out that when collective
bargaining is involved, the minimum wage level can become
highly politicized. Governments may avoid such politicization
by putting in place minimum-wage setting procedures that
anchor the minimum wage to objective data on labor market
conditions.
The panelists then discussed problems of enforcement of
minimum wage regulations. Unlike in advanced countries,
in many developing countries, especially those with large
informal sectors such as India, compliance with minimum wage
regulations leaves much room for improvement. If enforcement
is uneven across different firm types, then this too can create an
GOOGLE HANGOUT ON MINIMUMWAGES AS AN INSTRUMENT TO REDUCE
INEQUALITY IN EMERGING MARKETS
(2014.11.18)
Watch the recorded Hangout at
Albert Park
Carl Lin
Haroon Bhorat
Uma Rani
Ximena del Carpio
