MINIMUM WAGES ACROSS OECD AND

EU COUNTRIES

Andrea Garnero, OECD

Mutual Learning Programme-Learning Exchange

“Minimum wages in the framework of collective
bargaining systems”

London, 11th September 2015

 A Renewed Interest in MW

CZE, EST, DEU,

HUN, IRL, POL,
SVK, SVN, UK
Introduced
AUS, BEL, CAN, since 1990
CHL, FRA, GRC, (9 countries) + LVA, LTU,
ISR, JPN, KOR, BHR, HRV,
LUX, MEX, In place in 1990 MLT, ROU
NLD, NZL, PRT, (17 countries)
ESP, TUR, USA
No statutory
+ BRA, RUS, minimum
IND, CHN, ZAF (8 countries)
AUT, DNK, FIN,
ISL, ITA, NOR,
SWE, CHE

+ CYP
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 Strong Differences in Levels…
MW as a % of median and average wages of FT employees, 2013
Minimum-to-median wage Minimum-to-average wage
%
OECD (Minimum-to-median wage) OECD (Minimum-to-average wage)
120

100

80

60

40

20

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 …and Coverage

Proportion of workers earning at or below the minimum wage, 2010

% of workers earning at or below the minimum Minimum-wage level, % of median (right scale)
%
20 80

Results from cross-country Results from national

earnings data 70
data sources
15 60

50

10 40

30

5 20

10

0 0

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 Minimum Wages During the Crisis

MW levels pre- and post-crisis, OECD

MWs as a % of median wages of full-time employees (in gross terms)

2007 2013

%
75
70
65
60
55
50
45
40
35
30
25

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 Not a Single System

Different setting Exemptions:

mechanisms:
• Government legislated
• Consultation process
• Bargaining process
• Youth
• Long-term unemployed
• Regions
• Others (e.g. disabilities)

Uprating procedure:
• Regular revisions vs. irregular (and
political)
• Presence of a Commission

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 MW Also Fixed by Collective Bargaining

Source: Kampelmann, Garnero and Rycx (2013), Minimum wages in Europe: does the diversity of systems lead to a diversity of outcomes?, ETUI.

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 Interaction with Collective Bargaining

Low bargaining Medium High coverage

coverage coverage
Sectoral/occupatio - Cyprus, Germany Austria, Finland,
nal MW Denmark, Italy
Latvia, United Kingdom, Romania, Greece Belgium, France
National statutory
Ireland, Bulgaria, Estonia,
MW
Hungary, Portugal, Poland
Source: Kampelmann, Garnero and Rycx (2013), Minimum wages in Europe: does the diversity of systems lead to a diversity of outcomes?,
ETUI.

The two systems can be functional equivalent or reinforce

each other.

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How Do the Systems Compare?

Source: Kampelmann, Garnero and Rycx (2013), Minimum wages in Europe: does the diversity of systems lead to a
diversity of outcomes?, ETUI.
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Coverage Is an Issue!

Source: Kampelmann, Garnero and Rycx (2013), Minimum wages in Europe: does the diversity of systems lead to
a diversity of outcomes?, ETUI.
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 CB vs. MW

• NMW → lower minimum wages (Kaitz).

• But a neglected trade-off: higher Kaitz
indices → higher % workers below MW.
• This negative side effect is significantly
smaller in countries with NMW or high
CBC → CBC and NMW functional
equivalent.
• NMW or high CBC both reduce total wage
inequality.
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 MW and Employment
The effect of minimum wages on employment: What meta-analyses show
Study Number of studies Country coverage Impact on employment Impact on youth
covered employment
Doucouliagos and Stanley (2008) 64 United States Little or no impact Negative, but small

Boockmann (2010) 55 15 industrial countries Negative, but varies across

countries
Nataraj et al. (2014) 17 15 low-income countries Ambiguous

Leonard, Stanley and 16 United Kingdom No impact

Doucouliagos (2014)
Belman and Wolfson (2014) 23 Mostly United States Small negative impact

Chletsos and Giotis (2015) 77 18 developed and developing No impact More negative, but not always
countries significant
Broecke, Forti and Vandeweyer 74 Ten major emerging Little or no impact More negative, but still very
(forthcoming) economies small

But beware to
youth, low skilled, long term unemployed and regional difference

+ potentially pervasive effects of extension of CB.

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 MW and Poverty

Working hours needed at minimum wage to move above a relative

poverty line, 2013

Single, 2 children, no housing benefit One earner couple, 2 children, no housing benefit
%

90

80

70

60

50

40

30

20

10

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 Labour Cost vs. Gross vs. Net

Employer and employee taxes and social contributions, 2013

% of gross earnings
Employer payroll taxes and contributions Employee income taxes and contributions
% Net earnings
160
140
120
100
80
60
40
20
0

* Germany: Minimum-wage level 2015 is expressed in % of the projected 2015 median wage. United States: Government-
proposed federal minimum for 2016 is expressed in % of the projected 2016 median wage. Projections are based on earnings 14
data from the OECD Economic Outlook database.
 Different Tax Regimes

Employer payroll taxes and social Employee income taxes and social
contributions by wage level, 2013, contributions by wage level, 2013,
in percentage of gross earnings in percentage of gross earnings
Minimum-wage earner Median-wage earner Minimum-wage earner Median-wage earner
45% 45%
40%
40%
35%
35% 30%
30% 25%
20%
25% 15%
20% 10%
5%
15% 0%
10% -5%
-10%
5%
-15%
0% -20%

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 Beware to the Interactions with T&B
Share of MW increase that is left after taxes and benefit reductions,
lone parent family, 2013
Net gain Employee income tax and social contributions Benefit reduction
%

120

100

80

60

40

20

-20

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 Key principles

1. Improve coverage of and compliance with minimum wage

legislation, especially in countries where collective bargaining is weak
or declining.
2. Ensure that minimum wages are revised regularly, based on
accurate, up-to-date and impartial information and advice that
carefully considers current labour market conditions and the views of
social partners.
3. Where necessary, allow minimum wages to vary by group (to
reflect differences in productivity or employment barriers) and/or by
region (to reflect differences in economic conditions) – bearing in
mind that simple minimum wage systems are most likely to
achieve high compliance.
4. Make minimum wages pay while avoiding that they price low-skilled
workers out of jobs, by carefully considering their interactions
with the tax-benefit system.
5. Use minimum wages as a tool to raise wages at the bottom of the
wage ladder, but accompany them with other tax and benefit
measures to effectively fight poverty in and out of work.
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 Thank you!
Read more about our work Follow us on Twitter: @OECD_Social

Contact: andrea.garnero@oecd.org

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