Fixing minimum wage levels in developing countries: Common failures and remedies

Some developing countries have set their minimum wages too high or too low to constitute a meaningful constraint on employers. The article compares minimum wages worldwide, proposes several ways of measuring them in developing countries and discusses whether they are effective thresholds in those countries. The second part of the article considers the institutional factors leading countries to set minimum wages at extreme levels. The author concludes that the minimum wage is used as a policy instrument to several ends – wage negotiation, deflation and social dialogue – which results in the absence of a wage floor, weak collective bargaining, or non‐compliance.     

Economic growth and inequality in Singapore: The case for a minimum wage

In the context of Singapore's ageing population, the employment of large numbers of low‐skilled foreign workers is proving to be a major challenge to inclusive growth because of the stagnation of low‐wage workers' incomes. In order to address this problem, the author makes the case for introducing a minimum wage to complement existing in‐work benefit schemes. After addressing the commonly voiced objections to a minimum wage system, he suggests ways in which a minimum wage could be implemented in Singapore. New measures to enhance the social safety net and foster more sustainable economic growth are also proposed.     

Visualising Gender Wage Differences in the European Union

The purpose of this article is to illustrate differences in the gender wage gap in 13 EU member states, using figures taken from the Household Panel for 2000. The methodology is based primarily on the kernel density functions of men's and women's wages. A range of situations can be observed from the Mediterranean countries (with a smaller gender pay gap) to the very specific cases of Austria and the UK and to northern European countries where the gender pay gap is chiefly the result of a larger proportion of men at higher‐paid levels. We also offer conclusions on the relevance of public employment, part‐time employment and short‐term hiring to explain the gender wage gap in each of the countries studied.     

Minimum wages and poverty with income-sharing

Textbook analysis tells us that in a competitive labor market, the introduction of a minimum wage above the competitive equilibrium wage will cause unemployment. This paper makes three contributions to the basic theory of the minimum wage. First, we analyze the effects of a higher minimum wage in terms of poverty rather than in terms of unemployment. Second, we extend the standard textbook model to allow for income-sharing between employed and unemployed persons in society. Third, we extend the basic model to deal with income sharing within families. We find that there are situations in which a higher minimum wage raises poverty, others where it reduces poverty, and yet others in which poverty is unchanged. We characterize precisely how the poverty effect depends on four parameters: the degree of poverty aversion, the elasticity of labor demand, the ratio of the minimum wage to the poverty line, and the extent of income-sharing. Thus, shifting the perspective from unemployment to poverty leads to a considerable enrichment of the theory of the minimum wage.      

Inter‐country wage differences in the European Union

This article investigates the determinants of wage gaps between European Union countries along the wage distribution, applying the methodology proposed by Firpo, Fortin and Lemieux (2009) and Fortin, Lemieux and Firpo (2011). The authors conclude that both wage structure and composition effects contribute to explaining wage differentials, but that the wage structure effect is more important. This latter effect would appear to derive from differences between unknown factors, while the composition effect can largely be explained by differences in the following areas: education, proportion of workers with supervisory responsibilities, occupational structure, and, to a lesser extent, industrial structure.     

Career Sidestep,Wage Setback? The Impact of Different Types of Employment Interruptions on Wages

We examined the wage implications of different types of wage employment interruptions in a sample of 44,384 Belgian employees. The employment interruption types included are family leave, unemployment, self‐employment, educational leave and a category other interruptions (for example, travel, voluntary work). We conduct separate analyses for men and women. Results indicate that unemployment spells and family breaks are penalized by lower subsequent wages, while the wage impact of self‐employment spells and educational leave is insignificant. Family breaks and unemployment spells were found to be more harmful for men than for women. Implications of the results and directions for future research are discussed.     

Accounting for the permanent vs temporary wage gaps among young adults: Three European countries in perspective

This article analyses wage differentials between permanent and temporary workers in the 25–40 age bracket using the 2010 European Union Statistics on Income and Living Conditions (EU‐SILC) wave data for France, Germany and Italy. Applying a Recentered Influence Function (RIF) regression and a reweighting estimation technique, we investigate the contribution of personal and job characteristics to wage differentials across the wage distribution. Results point to a large unexplained component of the wage gap across the whole distribution in Italy, while this component is weaker in France among highly paid employees and insignificant in Germany. These findings highlight potential policy considerations and areas for future research.     

The regional distribution of skill premia in urban China: Implications for growth and inequality

Based on urban household survey data, the authors find that skill premia increased significantly across all regions of China between 1995 and 2002, but only in coastal regions between 2002 and 2007. By then, these regions also displayed much wider wage inequality and thus contributed more to overall urban wage inequality than non‐coastal regions. While privatization was the main driver of skill premia in 1995–2002, China's (regionally uneven) integration into the global economy became the dominant influence in 2002–07. Reducing skill premia and inequality, the authors argue, calls for reform of the Hukou registration system which impedes skilled labour mobility and possibly also growth.     

MINIMUM WAGES,IMPORT STATUS,AND FIRMS' INNOVATION: THEORY AND EVIDENCE FROM CHINA

This study explores the heterogeneous effects of minimum wage on innovation of different types of firms. We develop an open‐economy R&D‐based growth model and obtain the following result: raising the minimum wage reduces innovation of firms that use domestic inputs but increases innovation of firms that import foreign inputs. We test this result using city‐level data on minimum wages and firm‐level patent data in China. In accordance with our theory, we find that raising the minimum wage is associated with more innovation by importing firms and less by non‐importing firms. This result survives a battery of robustness checks. (JEL E24, F43, O31)     

Influence of female managers on gender wage gap and returns to cognitive and non‐cognitive skills

There is a modest but growing empirical body of evidence on the influence of managers' gender on the wages of their male and female subordinates. Most of these studies, however, suffer from a very raw approximation of the managers' gender by the share of women in charge, and often lack many important gender‐specific personal characteristics, such as non‐cognitive skills and life–work preferences, which can lead to biased results. This article copes with the mentioned deficiencies by employing a very rich and representative dataset of 1948 employees from the Czech Republic. It reveals surprising results as it shows that the gender of the manager has an effect on the level of wages, but not on the gender wage gap. It also shows that the gender of the manager and his/her subordinate has only a weak impact on the remuneration of an employee´s non‐cognitive skills and life–work preferences.     

The gender pay gap at labour market entrance: Evidence from Germany

The authors investigate wage differentials between German male and female graduates at labour market entrance at all percentiles of the wage distribution. The wage differentials are decomposed using the single‐index approach suggested by DiNardo, Fortin and Lemieux (1996) and Fortin and Lemieux (1998), and by endowment, price and returns‐to‐skill function effects. The results reveal higher starting salaries for men at all percentiles of the income distribution, with the pay gap varying in magnitude. The endowment and price effects are favourable for men throughout. The effect of the difference in the returns‐to‐skill function works in favour of female graduates.     

Stagnation only on the surface? The implications of skill and family responsibilities for the gender wage gap in Sweden, 1974–2010

The wage differential between women and men persists in advanced economies despite the inflow of women into qualified occupations in recent years. Using five waves of the Swedish Level‐of‐Living Survey (LNU), this paper explores the gender wage gap in Sweden during the 1974–2010 period overall and by skill level. The empirical analyses showed that the general gender wage gap has been nearly unchanged for the past 30 years. However, the gender difference in wage in less qualified occupations fell considerably, whereas the gender pay gap remained stable for men and women in qualified occupations. The larger significance of family responsibilities for wages in qualified occupations is one likely explanation for this result.     

Are labour inspections effective when labour regulations vary according to the size of the firm? Evidence from Peru

This article analyses the impact of enforcement of four labour standards (pension system enrolment, minimum wage, maximum weekly working hours and written employment contract) on compliance in Peru, where labour regulations and penalties vary according to firm size. The author uses household survey data to analyse a factor not previously studied – adjustment by firms through downsizing to benefit from lower fines and less stringent regulations. The empirical findings indicate that enforcement efforts have little effect on either the degree of compliance or the size of firms.     

Employer attitudes towards refugee immigrants: Findings from a Swedish survey

Based on a large‐scale survey of Swedish firms, the authors identify significant heterogeneity in their attitudes towards refugee hiring, job performance, wage setting and discrimination, though experience of employing refugees reduces negative attitudes. Firms’ reasons for discontinuing their employment of refugees are not related to discrimination by staff or customers, but rather to refugees’ suboptimal job performance. While the majority of firms do not regard the collectively agreed minimum wages as an important obstacle to the hiring of refugees, firms with a large share of refugees on the payroll report that reducing those wage rates would enhance employment substantially.     

Native‐Migrant Wage Differential Across Occupations: Evidence from Australia

We investigate wage differential by migrant status across white‐collar and blue‐collar occupations in Australia. Migrants are observed to have a higher wage; this difference, however, does not exist once we control for covariates. The unconditional wage differential varies over wage distribution as well as by occupation. Significant wage differentials are found above the median: positive for white‐collar workers and negative for blue‐collar workers. Using recently developed decomposition methods based on Firpo, Fortin, and Lemieux (2009) we decompose wage differentials across their distribution. Overall, the wage advantage of migrants reflects their superior labour market characteristics, and in particular, their levels of education. We find that English language proficiency plays an important role in wage differences among immigrants from non‐English speaking countries.     

The Effects of Minimum Wage Increases on Retail Employment and Hours: New Evidence from Monthly CPS Data

Proponents of state and federal minimum wage increases argue that past minimum wage hikes have not adversely affected retail employment. However, the existing empirical evidence is mixed. This study uses monthly data from the 1979–2004 Current Population Survey to provide new estimates of the effect of minimum wage increases on retail employment and hours worked. The findings suggest evidence of modest adverse effects. A 10% increase in the minimum wage is associated with a 1% decline in retail trade employment and usual weekly hours worked. Larger negative employment and hours effects are observed for the least experienced workers in the retail sector. These results are robust across a number of specifications, but are sensitive to controls for state time trends.

Participation and Impact of Poverty‐oriented Public Works Projects in Rural Malawi

This article reports on factors influencing participation in the poverty‐oriented public works programme in rural Malawi and analyses the determinants of the revealed positive socio‐economic impact among the participants. The programme targets poor households through self‐selection by offering a wage below the official minimum for rural areas. The empirical results show that most participants are poor and with little education. Probability of particpation is higher for members of female‐headed households and households with longer periods of food insecurity, excess supply of labour, few assets and reservation wages below the wage offered in the programme. Taking account of selectivity bias, the impact of the programme increases with the gender (female) of participants and the numbers per household participating.     

Effects of Minimum Wages on Youth Employment: the Importance of Accounting for Spatial Correlation

The relationship between minimum wage increases and youth employment is investigated using county-level data and spatial econometric techniques. Results that account for spatial correlation indicate that a 10% increase in the effective minimum wage is associated with a 3.2% decrease in youth employment, a result that is 28% higher than the corresponding estimate that does not control for spatial correlation. Thus, estimates that do not take into account spatial correlation may significantly underestimate the negative effect of the minimum wage on teenage employment. Improperly controlling for factors that vary systematically over space can lead to incorrect inferences and misinform policy.

Wage Inequality and Performance in Nonprofit and For‐Profit Organizations

This article examines the effects of several forms of wage inequality on service quality and employee effort. We suggest that two popular theories, tournament and fair wage/equity, are not necessarily competing. Each theory accurately describes aspects of employee behavior, but because of sectoral differences in organizational objectives and employee attitudes, tournament theory's predictions are relatively stronger in the for‐profit sector, while fair wage/equity theory's predictions are relatively stronger in the nonprofit sector. Using an employer–employee matched data set of nursing homes linked to a federal regulatory database and a resident survey, we found that ownership moderates the relationship between wage inequality and service quality. Although wage inequality positively affects service quality in the for‐profit sector, the reverse is true among nonprofit organizations. We also found that overall wage inequality in the workplace has a more pronounced influence on employee discretionary effort than does the employee's place in the distribution of wages.