Bunkweh Bertus Master Thesis: The Effect of Minimum Wage On Poverty and Inequality in Sub-Saharan Africa

THE EFFECT OF MINIMUM WAGE ON POVERTY AND INEQUALITY IN SUB-SAHARAN AFRICA
ABSTRACT
It is well documented that the problems of poverty and inequality in SSA have become an issue
for international and national concern. The main objective of this thesis is to determine the effect
of the minimum wage on poverty and inequality in this region. We use a large set of Cross-
country-level panel data that contains relevant information on the minimum wage, poverty and
inequality for SSA over the period 2004-2016. The first part of this study uses recent dynamic
panel estimation techniques, including those methods which deal with endogeneity concerns such
as the fixed and random effects estimates and the IV estimation techniques. To test for the
robustness of the results, the study uses the different proxies for poverty other than the poverty
headcount. With regards to our first specific question / objective, we find no evidence that the
minimum wage has a significant effect on poverty in SSA. In the second part of this study, we
put into evidence, the effect of the minimum wage on inequality in SSA. To gauge the
contribution of minimum wage increases to reducing inequality, we use the GMM estimation
technique with the three appreciate measures of inequality; the Gini index, Atkinson index and
the Palma ratio as proxies to inequality. After the robustness checks, with additional controls and
the IV estimate, results remain consistent. Therefore, with regards to the second specific question
/ objective, we found empirical evidence that the minimum wage has a negative and significant
effect on inequality in SSA.
Key words: Minimum wage, Poverty and Inequality.
Masters thesis in economics

RÉSUME
Il est bien établi que les problèmes de pauvreté et d'inégalité en ASS sont devenus un problème
d'intérêt international et national. L'objectif principal de cette thèse est de déterminer l'effet du
salaire minimum sur la pauvreté et les inégalités dans cette région. Nous utilisons un vaste
ensemble de données de panel au niveau transnational qui contiennent des informations
pertinentes sur le salaire minimum, la pauvreté et les inégalités en Afrique Sub-Saharienne au
cours de la période 2004-2016. La première partie de cette étude utilise des techniques récentes
d'estimation de panel dynamique, y compris les méthodes qui traitent des problèmes
d'endogénéité telles que les estimations des effets fixes et aléatoires et les techniques d'estimation
IV. Pour tester la robustesse des résultats, l'étude utilise les différents indicateurs de pauvreté
autres que l'indice de pauvreté. En ce qui concerne notre première question/objectif spécifique,
nous ne trouvons aucune preuve que le salaire minimum ait un effet significatif sur la pauvreté en
ASS. Dans la deuxième partie de cette étude, nous mettons en évidence l'effet du salaire
minimum sur les inégalités en ASS. Pour évaluer la contribution des augmentations du salaire
minimum à la réduction des inégalités, nous utilisons la technique d'estimation GMM avec les
trois mesures appréciées des inégalités ; l'indice de Gini, l'indice d'Atkinson et le ratio de Palma
comme approximations de l'inégalité. Après les contrôles de robustesse, avec des contrôles
supplémentaires et l'estimation IV, les résultats restent cohérents. Par conséquent, en ce qui
concerne la deuxième question/objectif spécifique, nous avons trouvé des preuves empiriques que
le salaire minimum a un effet négatif et significatif sur les inégalités en Afrique subsaharienne.
Mots clés : Salaire minimum, Pauvreté et Inégalité.

xi

GENERAL INTRODUCTION
Masters thesis in economics 1

I. Background of the study

The minimum wage1 applies to many millions of workers around the world. Over the latter half of
the 20th century, almost all countries in Sub-Saharan Africa (SSA) introduced some form of the
minimum wage legislation. In many cases, these laws apply to workers in specific industries or
occupations. In instances where wage levels are not set by the state, collectively bargained
agreements may fix wages for specific sectors or occupations. Generally, the introduction of
national laws governing wages is part of an observed regulatory revival in low-income countries
(LIC) and middle-income countries (MIC), where a range of labour regulations aimed at
protecting low-paid workers, have gradually been introduced (Piore and Schrank 2008). There
has been widespread adoption2 of minimum wage legislation as a policy tool in SSA.
It is of interest of this study to make a distinction between the usually small, formal, wageearning
sector and usually large, informal, non-wage-earning sector in most Sub-Saharan African
countries. The covered sector is relatively small in a good number of these countries (Bhorat et
al. 2012). This has implications for minimum wage policy and research. It is well known that in
the overwhelming majority of SSA economies, subsistence agriculture and more recently, urban
informal employment dominates the labour market. In many such countries, wage-earning
employees only make up a small portion of the labour force. This makes it difficult to have a
clear picture of the effects of the minimum wage on macroeconomic variables such as poverty,
employment, income inequality and others.
Minimum wages only apply to wage-earning employees and, in some cases, only to formal sector
wage earners. Wage regulations thus cover only a minority of the total workforce in most SSA
economics and other developing countries (Rani et al. 2013). This may go some way to
explaining the depth3 of existing research.
It is a stylized fact that a large gap exists between de jure and de facto labour regulation in most
LIC and MIC globally. Simply put, the levels of noncompliance with minimum wage laws are
high. This has been shown in several studies (Rani et al. 2013; and Almeida and Ronconi 2012)
1 The ILO's Committee of Experts has defined the minimum wage as 'the minimum amount of remuneration that an employer is
required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or
an individual contract (ILO, 2014, p.33).
2 But, yet there has been little research work on the nature, scope, and impact of such laws in most developing countries as noted in
a study by Neumark and Wascher (2007)
3 This may be due to the unavailability of adequate statistics on minimum wage at individual country-level and the regional level as
a whole.

and is supported by the empirical evidence presented in this work. One could be tempted to argue
that high levels of noncompliance make wage regulation irrelevant. The reasons for high levels of
noncompliance are not yet adequately understood. A study of the enforcement of minimum
wages is of interest in its own right but can also contribute to a broader research agenda on
questions related to the rule of law.
With regards to poverty, people may experience inadequacy in particular needs (like
homelessness or cold) without this being sufficient to constitute 'poverty', although needs are still
clearly important as primary indicators of poverty (Whelan and Whelan 1995). Duration is
important, temporary deprivations (like those experienced by the victims of catastrophes) are not
enough to constitute 'poverty'. Poverty is defined, then, on the existence of a pattern of
deprivation, rather than by the deprivation itself. Following the argument about lack of basic
security, it would be possible for a poor person to be subject to multiple deprivations even though
that person was not experiencing a specific deprivation at a particular point of time. The
definition of poverty would depend, rather, on cumulative experience over time. Voices of the
Poor, a series of studies for the World Bank, define poverty as the 'web' of deprivation (Narayan
et al. 2000) - an expressive metaphor, referring to a constellation of issues where people might
suffer from shifting combinations of problems over time (Coffield and Sarsby 1980; Kolvin et al.
1990).
Income inequality (or income disparity) is the degree to which total income is distributed
unevenly throughout a population. In many cases of economic inequality, wealth flows
disproportionately towards a small number of already financially well-off individuals. Income
disparity is driven by a number of economic, structural, and demographic forces. Economists are
still working to figure out exactly why inequality rose in SSA over the last century
(MasterClassstaff 2020). That said, seven primary factors that contribute to income inequality
are: Tax policy:
One of the most important variables is a country‟s tax policy, with tax structures that raise
economic growth in the short-term while supporting increased government revenue in the
longterm connected to the lowest instances of income inequality; Unemployment: Unemployment
is a major variable which greatly increases the likelihood of income inequality, as does lower
overall participation of the labor force. Some economists also argue that inequality actually
stems from the rise in housing prices and the inability of workers to afford to move to cities with

high job growth; Globalization: In recent decades, corporations in the SSA have steadily
increased their outsourcing of jobs overseas as a means of reducing bottom-line costs, in turn
eliminating jobs for working and middle-class workers. International trade undoubtedly also
plays a role, as it tends to favor highly educated workers at the expense of workers with less
education; Increased automation: In wealthier countries, automation has started to replace many
once high-paying blue collar jobs, leading to layoffs. Recent technological advances have tended
to favor educated workers over less educated workers, driving up the wages of the former, while
holding stagnant or even driving down the wages of the latter; The decline of unions: Since 2000,
20 percent of factory jobs have disappeared in the, many of which were high-paying union jobs.
Deregulation and the increase of “right to work” practices have similarly impacted the number of
union jobs, reducing union protections for workers and increasing income inequality across
countries; Race / gender disparities: Income inequality is most severe along race and gender
lines, with women and people of color hit the hardest. On average, men earn 68 percent more
than their female counterparts in the worldwide, with white males earning approximately twice as
much as the country‟s lowest earning demographic, Hispanic females; and Salary gaps: The
income inequality that we have today mostly comes from wide pay gaps. At the very top are
suite executives, who have seen their average compensation, grow nearly tenfold between 1960
and 2019. Collegeeducated workers in general have fared far better than average, seeing their
wages nearly double over that same period. By comparison, workers with less than a high school
diploma have seen no growth in real wages over that same period. In turn, these salary
differences contribute to wealth inequality: unlike most workers, top earners rarely spend all of
what they make in a year. Over time, those built up savings produce vast wealth that will
eventually pass onto their children, perpetuating the cycle.
One of the reasons advocated by the proponents of minimum wage is to reduce poverty and
inequality since it increases the income of the low paid workers. However, opponents of
minimum wage hold that even if this is true for inequality reduction under certain conditions, it
seems not always true for poverty reduction, although this consensus is not empirically verified.
According to these opponents, the implementation of the minimum wage lead to unemployment
of the low skilled workers, which subsequently aggravate poverty Neumark and Waschar (2007).
Another reason for minimum wage is for the decentralization of collective bargaining, which
receives strong political support, since unionism results in greater inequalities following ties of

solidarity among the wage earners of the same professional field, and prevents the social benefits
gained by trade unions to spill over into the entire sector of activity. In quantitative terms, the
number of sector-collective agreements is not a representative sample of the number of
employees benefiting from it. Its evolution may give the illusion of a familiar system taken for
granted by all, whereas the quality of the social benefits gained is always questionable. A look at
statistical figures suggests satisfying outcomes, but a closer look at its contents dampens
enthusiasm.
The problem of inadequate data is brought into a sharp relief when we analyze one of the most
extensive and centralized bodies of information on global minimum wages: the International
Labour Organization's (ILO) TRAVAIL database and the ILO global wage database (see the
various sources of country-level minimum wage data in the Global Wage Report 2019). While
these databases contain detailed information on minimum wage frameworks, the method of
setting wages in each of the ILO's member states, and data on enforcement practices for almost
every country, there is very limited information on wages, coverage, or levels of compliance for
countries in Sub-Saharan Africa. This is because for many countries in the region reliable data on
wages either do not exist or are not accessible. It is thus for this reason why selected country's
minimum wage regimes in SSA are used, where data are available, as well as some more detailed
work for several countries using household survey data.
Let's now sum up the background of study with Neumark and Wascher‟s (2007) analysis, they
include 15 studies focused on eight developing countries over the period 1992 to 2006. Wes
caution that studying minimum wage effects in developing countries is complicated, partly due to
issues we have already mentioned above that relate to data availability and quality, but also
because the results are often not easily generalizable across countries or sectors. The majority of
findings reviewed reveal either no effects or small negative effects of the former on variables
such as employment, inequality, growth, poverty.. in LIC and MIC settings.
II. Statement of the problem

The Poverty and Shared Prosperity (PSP, 2020) report shows that the number of poor has
increased at the US$1.90 poverty line in SSA. While the poverty rate has decreased at the three
lines between 1990 and 2018, the number of poor has increased. Poverty reduction has been
much slower at the higher lines: between 1990 and 2018 the poverty rate fell 15 percentage points

at the US$1.90 poverty line. However, the number of poor has risen by 50% at the US$1.90 line
and has doubled at the higher lines over the past three decades. Whatever progress has been made
in terms of reducing extreme poverty in Sub-Saharan Africa, it has not translated into equivalent
gains in consumption beyond the US$3.20 threshold.
Extreme poverty remains stubbornly high in SSA especially in countries affected by conflict and
political upheaval like the Central African Republic. Among the 736 million people who lived on
less than $1.90 a day in 2020, 413 million were in sub-Saharan Africa. This figure has been
climbing in recent years and is higher than the number of poor people in the rest of the world
combined. Forecasts suggest that without significant shifts in policy, extreme poverty will still be
in the double digits in SSAby 2030 (UN 2021).
In 2021, SSA remains the second most unequal region in the world next to Latin America. The
position of SSA in terms of inequality is in conformity with previous findings (Ravallion and
Chen, 2012) meaning this situation constitutes a key problem in the region. High inequality also
seems to have persisted overtime with no visible sign of declining Bigsten (2014). The situation
of high inequality has been on an increasing trend in Countries like South Africa and Namibia
where the Gini index have remained higher than 60% throughout the last two decades. While
there may be enough justifiable political economy reasons for ethnically fragmented countries to
experience high inequality, it is also possible that the wage variable may be picking up other
unobserved factors relevant for policy Milanovic (2003)
In most Countries in SSA, having a job and earning the minimum wage 4 does not guarantee a
decent living. In fact, 8 per cent of employed workers and their families in SSA lived in extreme
poverty in 2018, (UN, 2018). The situation remains particularly alarming in sub-Saharan Africa,
where the share of working poor stood at 38 per cent in 2018. In least developed and landlocked
developing countries like Chad; Central Africa Republic and others, at least one quarter of
workers live in extreme poverty despite having a job. Employed young people (between 15 and
24 years of age) are more likely to be living in poverty, with a working poverty rate that is double
that of adult workers (UN, 2015).
4 In recent years, minimum wages end up being diverted from their original meaning. For most of low-qualified workers, the base
pay straight from the salary grids of collective agreements lie below the minimum wage floor, employers bridging the gap with
tax-exempt primes and other allowances to keep it legal, Rassu (1993).

Although recent studies have attempted to answer questions related to minimum wage in different
domains in the economics literature, little have been done concerning the effect of minimum
wage on poverty and inequality especially in the SSA Obadan (1997). It is for this reason that a
study like this is necessary in the economic literature. The lack of a clear theoretical predictions
as to the consequences of a rise in the minimum wage on family incomes, necessitate empirical
works so as to provide answers by simulating the effect of actual or hypothetical labour contracts
on an existing distribution and poverty rate. “Minimum wages can reduce poverty and inequality
primarily under certain conditions” Addison et al (1998). The explanation for this statement is
that an assumption is made that low-wage workers are distributed rather evenly across the family
income distribution. But this assumption seems far from reality. The objective of this research is
to empirically verify this statement in the context of SSA.
III. Research question

As a guide to the analysis that follows, it's necessary to set a research question that verify the
effect of minimum wage on poverty and inequality in SSA countries, with the following central
question: What are the effects of minimum wage on poverty and inequality in SSA countries?
From this central question, we derived the specific questions as follows:
• How does a change in minimum wage affect poverty in SSA countries?

• How does a change in minimum wage affect inequality in SSA countries?
IV. Research objective

With regards to the research problem raised above, and based on the research question posed, the
main objective of this work is to determine the effect of minimum wage on poverty and
inequality in SSA countries. More specifically, we have the following specific objectives:
 To establish the effects of minimum wage on poverty in SSA countries.

 To establish the effects minimum wage on inequality in SSA countries.
V. Hypothesis of the study

In order to provide answer to the research question, we have two Hypotheses formulated as
follows:
 H0a: minimum wage does not have a significant effect on poverty in SSA.

 H0b: minimum wage does not have a significant effect on inequality in SSA.
VI. Importance of the study

The growing importance of research on the relationship between the minimum wage and
poverty / inequality and its controversial nature have sparked heated debate in SSA, highlighting
the importance of rigorous empirical research to guide evidence-based policy making. This study
will put in evidence the contribution of the minimum wage to the well-documented changes in
poverty and inequality in SSA over the period from 2004 to 2016 by using Country-level
minimum wage panel data.
This research proposes a balanced approach based on theoretical, statistical and economic
arguments that go beyond the constraints of a mere ideology. This work will therefore help many
governments in SSA to know if the minimum wage is an important element of public policy for
reducing poverty and inequality. For example, the minimum wage is supposed to raise earnings
for millions of low-wage workers and therefore lower earnings inequality. SSA has recently
exhibited rapid economic growth widening earnings inequality. Every government is interested in
growth with greater equality.
VII. Methodology
The methodological strategy employed in this study uses panel data on minimum wages, poverty
and inequality for the period 2004-2016 for 28 out of the 48 Countries in SSA. The sample size
of this study was determined mainly by the availability of data on Country-level minimum wages.
The first part of the study uses the OLS estimation method for the baseline results given that the
other higher-level estimation techniques like the Double least square failed to give optimum
results. However, OLS do face the problem of endogeniety. It is for this reason that the fixed
effect, random effect and IV estimation techniques are also used for robustness checks. The
second part of this study uses the GMM estimation technique. The other measures of inequality
other than the Gini index, such as the Atkinson, Palma ratio and the IV estimation technique are
used for robustness checks.
VIII. Organization of the work

The work is built on the general introduction, from which there are two parts organized in four
chapters and a general conclusion. The general introduction presents the background of the
study, the problem statement, the research question, the objective of the study, the hypothesis and

the importance of the study. Subsequently, we have two parts organized in four chapters. The
two parts of this work follow a more detailed plan as follows: On the one hand, the first part
entitled: effect of the minimum wage on poverty in SSA. This part is subdivided into two
chapters namely: chapter one which deals with the theoretical and empirical literature review on
the effect of the minimum wage on poverty in SSA. Chapter two throws more lights on the
stylized facts on the minimum wage and poverty in SSA, methodology, results and
interpretation/discussion of results. The second part of this work dwells on the effect of the
minimum wage on inequality in SSA. As before, the third chapter of this part is devoted to the
theoretical and empirical literature review on the effect of the minimum wage on inequality in
SSA. Chapter four throws more lights on the stylized facts on inequality in SSA, methodology,
results and interpretation/discussion of results. This part ends with a conclusion. And finally, a
general conclusion is presented to highlight recommendations, the limits of the study and the
main lessons resulting from this work likely to guide future work and reflections.

PART ONE
THE EFFECTS OF THE MINIMUM WAGE ON POVERTY IN SSA

Introduction to part one
There has been marked progress in reducing poverty in SSA over the past decades. According to
the most recent estimates, in 2015, 10 per cent of the world's population lived at or below $ 1.90 a
day. That's down from 16 per cent in 2010 and 36 per cent in 1990. This means that ending
extreme poverty is within our reach. However, the decline has slowed. In April 2013, the World
Bank set a new goal to end extreme poverty in a generation. The new target is to have no more
than 3 per cent of the world's population living on just $ 1.90 a day by 2030. By analyzing the
determinants of poverty we learn which poverty reduction strategies work, and which ones do
not. Poverty measurement also helps developing countries gauge program effectiveness and
guide their development strategy in a rapidly changing economic environment.
International interest in poverty and welfare in SSA countries has grown visibly in the past
decade, as has research on these issues. This growth is fueled in large part by a realization that

world poverty continues to defeat the best efforts to reduce it. Over the past three decades neither
direct poverty alleviation efforts nor economic growth has succeeded in stemming the rising
numbers of poor in many Countries in SSA. Progress has most certainly been made, but there is
now a clear sense in the development community that "increases in the minimum wage" is going
to better the lot of the world's poor any time soon. This is, therefore, an opportune time to step
back and review what we have learned from past attempts to reduce poverty through the
minimum wage. This study therefore, is believed to have a contribution to policy makers'
awareness of the factors that can effectively reduce poverty in the region.
We presents two chapters in this first part as follows; chapter one dwells on the review of
theoretical and empirical literature; chapter two throws more lights on the stylized facts,
methodology, results and interpretation/discussion of results.
CHAPTER ONE
LITERATURE REVIEW ON THE EFFECTS OF MINIMUM WAGE ON POVERTY IN SSA
Introduction to chapter one

Ever since the economic crisis of the 1980s, that initially hit US, Europe, and then to the other
part of the World including SSA, research on the relationship between minimum wage and
poverty reduction became an even more topical issue. The phenomenon of in work poverty is
recently emerging for the working-age population. Decreasing wages and increasing
unemployment are considered to lead to higher poverty rates (Cantillon et al., 2015). Also, the
protection of families with low income has come to the fore especially where the crisis hit more
such as Cameroon, Chad, Benin and Gabon. In academic level, minimum wage effects on
poverty have been strongly challenged despite that poverty effects of minimum wage changes are
less researched.
In this chapter, a review is made on related literatures including an assembly of several studies
(Card and Krueger 1995; Neumark and Wascher 2002; Burkhauser and Sabia 2007; Leigh 2007;
Sabia 2008; Boeri and van Ours, 2013) that support a weak minimum wage increases effect on
poverty and especially on working poor. Not withstanding, other literatures that support no effect

of the minimum wage on poverty will also be considered. Let's start with the theoretical literature
before the empirical literature.
1.1 Theoretical literature review

Theories predicted that raising the minimum wage level in developing countries may contribute
to widening the gap between workers in the covered sector (Livingstone 1995). It would thus
generate further poverty in relative terms. This argument has been developed in a work on
Malawi has a small urban sector and a large and impoverished, mainly informal, rural sector.
Different minimum wage rates apply in towns and rural areas, and rates have been periodically
increased but not sufficiently to compensate for the rise in consumer prices.
Livingstone (1995) predicted that increasing the minimum in towns and cities would only result
in driving workers from the rural areas to towns, where they would look for a job but not
necessarily find one. Therefore, the most efficient way of lifting workers out of poverty is to
raise the price of labour through rural development, not to increase the minimum wage in urban
areas. There is at least one counter argument. In some developing countries, unskilled wages
account for a higher proportion of the income of poor urban people than in developed countries
where the poor are more likely to benefit from social income (Lustig and McLeod, 1997, p. 65).
Thus a minimum wage increase may lift relatively more low-paid workers out of poverty in
developing countries.
Furthermore, changes in the minimum wage may alter the labour supply behavior of other
members of the households of minimum wage earners (ILO, 1997), with an effect on well-being.
To summarize, the effects on poverty are fourfold. Firstly, some workers lose their job in the
covered sector and, in the absence of unemployment benefits, receive zero income. Secondly,
some workers previously employed in the covered sector find a job in the uncovered sector and,
depending on the inter-sectoral wage differential, may fall into poverty. Thirdly, some workers
who keep their jobs in the covered sector earn more due to the introduction or increase of the
minimum wage. A proportion of them might escape poverty depending on the level at which the
minimum wage is set. Fourthly, a family may react to a decrease in the minimum wage earned
by one family member by increasing labour participation in the informal sector.
(Fields et al. 2007) predicted the effect of minimum wage on poverty through the relationship
between the poverty line and the minimum wage which depends on where the minimum wage W

is set relative to the poverty line z. In the case where the minimum wage is set above the poverty
line, the object being to raise the working poor out of poverty. In this case, all those who work
are out of poverty and the unemployed are in it. This corresponds most closely to the
conventional theory's identification of unemployment, and only unemployed are affected by
poverty. Since a higher minimum wage will increase unemployment in the textbook model, it
follows that in this case it will increase poverty too. If the minimum wage is higher than the
poverty line, further increases will increase poverty. But what about the range where the
minimum wage is below the poverty line. The poverty population then consists of x poor people
who receive the minimum wage W and (1 – x) poor people who are unemployed and receive zero
W. If everyone is below the poverty line, the headcount ratio is 100% and stays that way as the
minimum wage changes in this range. In this case an increase in minimum wage will have no
effect on poverty.
The main argument in favor of raising legal minimum wages is that higher minimum wages will
reduce poverty as theory predicts Addison et al (1998). Quite simply: putting more money into
the pockets of low-income workers will allow them to purchase more of the basic goods and
services needed to survive. In theory, if the wage increase is large enough, poor people‟s incomes
will rise, lifting them out of poverty. This sounds good in theory but it does not always happen in
practice. That is because the relationships between minimum wages, worker incomes, and
employment levels, and the incidence and depth of poverty are complex. First, the minimum
wage does not affect all workers or affect them equally. That makes it important to know which
workers are most likely to be affected and how. Second, even if a minimum wage raises the
incomes of some workers, it might not raise the incomes of poor households.
There is no clear predictions of the effect of the minimum wage on poverty, as the overall effect
depends on the value of several elasticities that are, themselves, difficult to predict (Addison and
Blackburn 1999). Only in the absence of disemployment effects are the implications of minimum
wage more transparent, since every low-wage worker should gain in this case. As the effect on
uncovered workers remains unclear, it makes sense to test the countries data by regressing change
in poverty rates on changes in the minimum wage. Theory, however, suggests that increases in
the minimum wage might reduce poverty if the disemployment effect of minimum wage is small.

1.2 Empirical literature review on the effect of minimum wage on poverty

The informal sector, where workers are not effectively covered by minimum wage legislation, is
typically large in developing countries, and poverty tends to be more widespread in the informal
sector (Almeida and Ronconi 2012). Even in the formal sector, minimum wage laws are often
poorly enforced. There are also employment effects to consider. An increase in the minimum
wage may cause some employers to lay off workers. If these workers live in low-income
households, poverty may increase, at least in the short term. Layoffs in the formal sector may also
put downward pressure on wages in the informal sector by increasing competition for informal
jobs. For all these reasons, increasing the minimum wage might have no positive impact on
poverty or worse, might backfire and deepen poverty, especially for the extremely poor.
(Saget, 2001) studies based on cross-country comparison indicate that a higher minimum wage is
associated with a lower level of poverty. However, this result should be interpreted with caution:
"This result per se does not imply that setting a higher minimum wage would reduce poverty; it is
merely the sign of a correlation between the two variables. For instance, the correlation could
indicate that countries with a high minimum wage are also more committed to the reduction of
poverty and have developed social policies targeting the poor". Therefore, a virtuous circle exists
between the minimum wage and other tools used to combat poverty. To fight poverty, the
minimum wage should be used with caution. At least three conditions have to be met in order for
the minimum wage to have a positive effect on the standards of living of workers and their
families: Firstly, no workers or very few workers should lose their jobs because of the minimum
wage. Secondly enterprises should be willing to comply with the minimum wage. And lastly,
there should be no increase in prices following the rise in the minimum wage.
Blackburn et al. (1998) use state-level data for the U.S. for the 1983-1996 period to study the
relationship between minimum wage and poverty. They focus on three groups that are more
likely to be affected: teenagers, young adults and junior high school dropouts. In their findings,
Addison and Blackburn argue that poverty rates among these groups are at least double those of
prime-age individuals and they find that minimum wage increases in the 1990s led to poverty
reduction. This effect is estimated to be stronger for junior high school dropouts. In contrast, the
results are the opposite in the 1980s. This difference may be associated with the absence of any
disemployment effect from minimum wage increases.

Focusing also in the U.S., Stevans and Sessions (2001) examine the minimum wage effect on
poverty for the 1984-1998 period. Their main innovation is the use of random coefficient model
and the inclusion of minimum wage coverage variable. Despite they find that minimum wage
reduces poverty, they argue that it is not an effective anti-poverty policy. Also, increased labour
force participation and higher minimum wage coverage affect poverty in a higher extent. Later,
Angel and Wodon (2004) analyze the potential effect from a minimum wage increase on wage
inequality in Colombia and Brazil and they find that this effect depends on the distributional
weights used for inequality measurement.
Fields and Kanbur (2005) analyze the conditions under which a minimum wage increase raises or
decreases poverty. These conditions are how high the minimum wage is relative to the poverty
line, labour demand elasticity, how much income-sharing takes place and poverty measure‟s
sensitivity to depth of poverty. Finally, they support that a minimum wage increase can either
raise or lower poverty. Thus, the relationship between minimum wage and poverty is more
complex and depends on several factors.
Burkhauser and Sabia (2007) extend the work of Card and Krueger (1995) examining the
efficiency of a higher minimum wage on poverty reduction. Using data from Current Population
Survey for the period 1988-2003, they still find no evidence that minimum wages increase leads
to poverty reduction. The main reason is that minimum wage mainly benefits non-poor
households. The anti-poverty effect of minimum wages is also doubted by Leigh (2007) who uses
data from household surveys over the period 1994-2003 in Australia. The weak minimum wage
effect is due to the fact that minimum wage workers do not belong to low-income but to
middleincome households.
Sabia and Nielsen (2015) analyze the minimum wage effect on poverty, material deprivation and
government program participation. Using data from the Survey of Income and Program
Participation from 1996, 2001 and 2004 waves, they support that demographic and economic
controls affect poverty as theory predicts. As far as minimum wage, its relationship with poverty
is estimated not to be statistically significant. Further, despite the fact that Sabia and Nielsen
(2005) work with alternative definitions of poverty, using different poverty thresholds or
measures, they do not find evidence of a statistically significant relationship between minimum

wage and poverty rate. However, authors do not find such evidence focusing on specific
subgroups of the population like workers.
Belman et al. (2015) examine who is affected by the minimum wage focusing on specific groups
who assess outcomes of the minimum wage. For teenagers and young adults, they argue that
minimum wage effect is either slightly negative or close to zero. However, they find that a
minimum wage increase will raise employed teenager‟s wages, as teenagers are more likely to be
paid near to the minimum wage. Furthermore, these authors claim that most of the studies do not
find any disemployment effect of the minimum wage for women apart from the low-educated.
Regarding men, any reported disemployment effect of the minimum wage is restricted to working
hour‟s reduction.
According to Boeri and Van (2013), it is doubtful if minimum wage can be an effective
antipoverty tool as it depends on who is affected by the minimum wage. For instance, minimum
wage applies to employees. But if most of employees are not at risk of poverty, then minimum
wage effect on poverty would not be significant. Furthermore, minimum wage effect on poverty
and inequality could cause adverse effects on employment and lead to higher poverty rates as
some individuals would lose their jobs and their income would turn to zero.
In the literature studying the relationship between minimum wages and poverty, Stigler (1946)
was the first to study it, arguing that low paid workers are not necessarily members of the poorest
households. So, it is doubtful if minimum wage can help those who are at the bottom of the
income distribution. In the same line of reasoning, the weak relationship between minimum
wages and poverty is also supported by Gramlich (1976) and Kelly (1976).
On the one hand, a high level of minimum wage is an effective way of protecting low-paid
workers from poverty but it might cover few such workers because of job losses, or
noncompliance following the introduction of the high minimum wage. On the other hand, a low
minimum wage might cover more workers but offer a weak protection against poverty "(Saget
2002). If the minimum wage is set at a level which is too high with respect to the capacity of
firms to pay wages, then enterprises will fire off workers or cease complying with the regulations.
Workers who have lost their jobs become vulnerable to poverty in the absence of employment
opportunities.

In developed countries, minimum wage effects on poverty have been strongly challenged.
Poverty effects of minimum wage changes are researched. There are several studies (Card and
Krueger 1995; Neumark and Wascher 2002; Leigh 2007; Sabia 2008; Boeri and Van, 2013) that
support a weak minimum wage increases effect on poverty and especially on the working poor.
Some possible reasons for existence of that weak effect are related with who is paid at the
minimum wage. Card and Krueger (1995) argue that minimum wage cannot significantly affect
poverty rates as poor Americans are not likely to be employed. Also, other studies support that
minimum wage earners are not the main breadwinners in their households (Burkhauser and Sabia
2007) so the household disposable income will not be significantly affected by a minimum wage
increase.
However, the most important aspect of the relationship between minimum wage and poverty is
related with any potential dis-employment effect. As Neumark and Wascher (2008) support, a
strong disemployment effect of minimum wage may cause wide job losses in case the minimum
wage increases. Then, instead of increasing incomes, employment earnings will dramatically fall
and workers previously paid at the minimum wage will enter unemployment and probably drop
into poverty. On the contrary, workers who remain employed will probably escape from poverty
as their employment earnings will raise. Thus, minimum wage effectiveness in reducing poverty
is strongly dependent on employment losses that may be caused. The implementation of
minimum wageis generally accompanied by some advantages; it increases the salary of the least
paid workers and thus reducing extreme poverty and inequality in the society. This subsequently
leads to an improvement in standards of living and economic growth. In the frame of the labour
market policy to fight against unemployment, the implementation of minimum wage for past
years have also seen a decrease in the level of unemployment.
Nora et al. (1997) main empirical finding from a cross section of developing countries is that
minimum wages and poverty are inversely related: that is, an increase in real minimum wages is
accompanied by a fall in poverty. Similar results are obtained using a variety of poverty measures
(headcount ratio and poverty gap), poverty lines (low and high), and population groups (urban
and rural). The inverse relationship is also found when observations are classified by positive and
negative growth, and when Latin American observations are distinguished from those for Asia.

Conclusion for chapter one

Throughout related literatures, the principal justification for minimum wage legislation resides in
improving the economic condition of low-wage workers, and if possible lifts them out of poverty.
Most previous analyzes of the distributional effects of minimum wages have been confined to
simulation exercises employing rather restrictive assumptions that guarantee the conclusion that
an increase in the minimum wage reduces poverty. In contrast, these results are not consistent
when the assumptions are relaxed.
CHAPTER TWO
EMPIRICAL EVIDENCE ON THE EFFECT OF MINIMUM WAGE ON POVERTY IN SSA
Introduction
This chapter is sub-divided into two sections: Section one presents some stylized facts on poverty
and section two presents the methodological strategy and discussions of the results. We also
present a set of tools (statistical data, analytical variables, econometric model and estimation
technique) that will be used.
SECTION 1: The stylized facts on minimum wage and poverty in SSA
2.1. SSA have been the poorest region in the World since 1999
One striking feature of the UN's MDG report and the World Bank's estimates is that more people
still live in extreme poverty in Sub Saharan Africa than any other region. For instance, 29.2 per
cent of the region's population still lives in extreme poverty by the end of 2015 (UN, 2015). The
World Bank's global poverty estimates based on 2011 PPP prices does not equally look good for
sub-Saharan Africa. Nearly 400 million people (about 37.7 per cent of SSA's population) are
estimated to have lived in extreme poverty by the end of 2012 (Table 1). About 347.1 million
people in SSA lived in extreme poverty by the close of 2015 compared to 287.6 million in 1990,
though the share of the population in poverty reduced within the same time.
SSA also appears to have witnessed a slower fall in poverty in comparison to the entire
developing world. For instance, while poverty in the developing world fell by 32.5 per cent
between 1990 and 2015 that of SSA fell by 26.6 per cent within the same period. Africa's share

of global poverty has seen a persistent increase from less than 20 percent in 1990 to nearly 50
percent in 2015 (World Bank, 2016). In contrast, East Asia, which accounted for over 50 per cent
of the share of global poverty in 1990, is now responsible for less than 20 per cent. This clearly,
is evidence that poverty is still a largely unsolved development problem in SSA. The poverty
rates among the top 10 countries with the largest number of poor people who account for almost
70 per cent of global poverty (Cruz, et al. 2015), are further testimony of how deep and
concentrated poverty is in the continent. For instance, six countries (Madagascar, Democratic
Republic of Congo, Mozambique, Nigeria, Tanzania, and Ethiopia) out of the list are in sub-
Saharan Africa, and these are the deeply poor among the list. Table 1: Share of population
below $1.90 a day (2011 ppp%)
Region 1990 1999 2011 2012 2015

East Asia and Pacific 60.6 37.5 8.5 7.2 14.1
Europe and Central Asia 1.9 7.8 2.4 2.1 1.7
Latin America/Caribbean 17.8 13.9 5.9 5.6 5.6
Middle East/North Africa _ __ _ _ _
South Asia 50.6 41.8 22.2 18.8 13.5
Sub-Saharan Africa 56.8 58.0 44.4 37.7 29.2
Developing World 44.4 34.3 16.5 14.9 11.9
World 37.1 29.1 14.1 12 7 9.6
Source: Author through the use of the UN (2015) annual report.
2.2 The evolution of poverty in some SSA Counties
The UN's MDGS 'report shows a significant reduction in global poverty since 1990 largely
attributable to the successes in China and India but however, noting a high concentration of
poverty in SSA. Between 2007 and 2016, poverty in Sub Sahara Africa reduced from sixty per
cent to forty per cent respectively (Beegle, et at. 2016). This fall in poverty has been offset by the
effect of population growth, resulting in an increase in the absolute number of poor people by
hundred million (Beegle et al., 2016). This implies poverty reduction has not kept pace with
population growth in the continent as a whole. The rise in absolute poverty has led many to
doubt the success verdict passed on the MDGS. Hickel (2016), for instance, has questioned the
"good news narrative" of the MDGS. Hickel points out that with the exception of China and East
Asia; there has been little or no reduction in the number of poor people in the developing world.
On aggregate, he believes poverty could be increasing in absolute terms in Africa. In fact, it is

consistent with the UN's acknowledgment of the unfinished business that world leaders met in
September 2015 to ratify the SDGS as the new global development goals.
Countries such as Mozambique, Burundi, Madagascar and the Central African Republic remain in
extreme poverty. It appears not much has changed since the turn of this century and sometimes
poverty has worsened (Economic Commission for Africa, 2014). For instance
Nigeria's new government led by President Buhari is revealing government corruption that eroded
the country's gains from its growth. However, (Figure 1) shows, the incidence of poverty have
fallen consistently within this region.
Uneven country evidence go to support the argument that the MDGS were better off measured at
the country level than at the global stage given the tendency for failure of some economies to be
clouded by unprecedented successes in other economies. Such an approach for the SDGS can
provide an intuitive basis for assessments. As Aryeetey et al. (2012) have rightly said: Agenda
2030 in sub-Saharan Africa: The MDGS narrative on poverty eradication stated, "Global goals
become de facto national goals since getting to zero poverty worldwide implies getting to (or
near) zero in every country.
Figure 1: Share of population below the $1.90 a day (2011 ppp%)
Poverty Headcount ratio

80
60
40
20
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Author through the use of PovcalNet (2017) data and stata 15
2.3 Stylized facts on the Determinants of Poverty in SSA

According to the World Bank (1990), and the United Nations (1995), poverty has various
manifestations which include the lack of income and productive resources sufficient malnutrition,
ill health, limited or lack of access to education and other basic to ensure sustainable livelihood,
hunger, and services, increased morbidity and mortality from illness, homelessness, inadequate,

unsafe and degraded environment, social discrimination and exclusion. It is also characterized by
lack of participation in decision making in civil, social and cultural life (see World Bank 2001).
Yahie (1993) reiterates that the factors that cause poverty include: (i) structural causes that are
more permanent and depend on a host of exogenous factors such as limited resources, lack of
skills, local disadvantage and other factors that are inherent in the social and political set-up; and
(ii) the transitional causes that are mainly due to structural adjustment reforms and changes in
domestic economic policies that may result in price changes, unemployment and so on. Natural
calamities such as drought and man-made disasters such as wars, environmental degradation and
so on also induce transitional poverty. (Narayan et al. 2000a, 2000b).
In their discussions of the factors that cause poverty, de Haan (2000) and Sindzingre (2000) note
that poverty could also be caused by general exclusion of the people from social life. To them
exclusion reflects discrimination, which is a process that denies individuals from full participation
in material exchange or interaction. The concept is tied to exclusion from the labour market,
long-term unemployment and the destruction of the social links and integration that usually
accompany work. The definition also widens to include precariousness, vulnerable and insecurity
(especially that of employment) and exclusion from social life.
As observed by Obadan (1997) in Sub-Saharan Africa, the main factors that cause poverty
include: inadequate access to employment opportunities; inadequate physical assets such as land,
capital and minimal access by the poor to credit even on a small scale; inadequate access to the
means of supporting rural development in poor regions; inadequate access to markets where the
poor can sell goods and services; low endowment of human capital, destruction of natural
resources leading to environmental degradation and reduced productivity; inadequate access to
assistance for those living at the margin and those victimized by transitory poverty and lack of
participation. That is, failure to draw the poor into the design of development programs.
2.4 Evolution of minimum wage in SSA

In 2016, Sub-Saharan Africa‟s negative wage growth of -1.7 percent contributed to global low
wage growth trends. Africa was the only region to experience negative average real wage growth,
although some countries in other regions, particularly Latin America and the Caribbean, also
faced negative wage growth. The decrease in average real wage growth on the continent was
mostly driven by falling real wages in populous South Africa, where currency devaluation led to

very high inflation rates, and Nigeria. With these two countries removed from the sample, Figure
1 shows that real wages in the rest of SSA moderately increased in 2009 to 2013 with a slight
improvement over the rates of the previous two years. Wage growth remained much lower in
2008, however, than during the period from 2009 to 2013, when growth averaged a rate of 3.5
percent due to the 2008 global depression.
Figure 2: Evolution of the real minimum wage in SSA from 2004 - 2016
Evolution of the minimum wage

6
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-2
Source: Author through the use of UNSD (2019) data and stata 15
SECTION 2: Methodological strategy and discussion of results
Introduction
The objective of this section is to present the methodology used in this work, the results and
discussion. For this reason, we proceed first with the presentation of database, sources and the
variables of the model to be used and secondly with the presentation of the model followed by the
estimation techniques indicated. The last part of this section is the presentation of results and
discussion.
2.5. Sample5 size and reason for choosing the sample

Our sample comprised of twenty-eight countries from SSA region. Our choice of countries and
time intervals is dictated by the availability of consecutive survey-based poverty measures using
identical poverty lines. The lack of real minimum wage series also imposes on the sample size:
5 The following countries were included in the sample: Angola, Benin, Botswana, Burundi, Cabo Verde, Central African
Republic, Congo, Côte d'Ivoire, Democratic Republic of the Congo, Ethiopia, Ghana, Guinea, Kenya, Mozambique, Namibia,
Nigeria , Rwanda, South Africa, United Republic of Tanzania, Uganda, Lesotho, Madagascar, Malawi, Mali, Mauritius, Morocco,
Zambia and Zimbabwe.

about twenty observations of change in poverty had to be dropped out because there were no
variations in data on the minimum wages.
2.6 Variables of the study

Dependent variable
Poverty: This variable is measured by the poverty headcount index and the poverty gap. Poverty
headcount ratio at $1.90 a day is the percentage of the population living on less than $1.90 a day
at 2011 international prices. As a result of revisions in PPP exchange rates, poverty rates for
individual countries cannot be compared with poverty rates reported in earlier editions
(PovcalNet 2017). Poverty gap at $1.90 a day (2011 PPP) is the mean shortfall in income or
consumption from the poverty line $1.90 a day (counting the non-poor as having zero shortfall),
expressed as a percentage of the poverty line. This measure reflects the depth of poverty as well
as its incidence. As a result of revisions in PPP exchange rates, poverty rates for individual
countries cannot be compared with poverty rates reported in earlier editions.
Independent variables
The independent variables have a dual nature; a distinction is made between the variable of
interest and the control variables as follows:
Variable of interest
Minimum wage (MW): This variable is captured by the series of minimum wage figures for the
selected countries under study, implemented at country level wage reforms. These labor market
reforms raise the question of whether minimum wage laws help or hurt the poor in developing
countries. This further gives more reason for this study. Card and Krueger (1995) recommend a
continuous series of minimum wage when we want to study its effects.
Control variables
Economic growth (Growth). This variable is captured by GDP per Capita. These values are
expressed in US dollars ($) in order to ease cross-country analysis. Lustigetal (2002) argue that
economic growth is a necessary, but not a sufficient, condition for poverty reduction, and that the
impact on poverty reduction is significantly smaller in countries with initially high levels of

inequality. Hence, redistribution is necessary in order for economic growth to have

povertyreducing effects.
Public debt (DEPT). This variable includes the domestic debt and the external debt expressed in
US dollars. The link between public debt and economic growth has recently been the subject of a
series of empirical studies. Ferreira (2009) and Kumar and Woo (2010), for example, find a
negative correlation between the two variables, as theoretically postulated. Ferreira (2009)
performed Granger causality tests for 20 OECD countries, looking only at annual growth rates. It
shows that rising debt ratios have negative effects on growth. The effect is statistically
significant. Public debt intervenes into Poverty through the economic growth channel.
Remittances: These are the financial and material assistance received by Nationals from love
ones abroad. In this study, remittances are expressed in real terms by dividing the variable by the
GDP deflator. At the household level, international remittances increase family incomes, thus
raising consumption of both durable and non-durable goods and/or savings. Indeed, in
SubSaharan Africa, remittances are part of a private welfare system that transfers purchasing
power from relatively richer to relatively poorer members of a family. They reduce poverty,
smooth consumption, affect labor supply, provide working capital, and have multiplier effects
through increased household spending. For the most part, remittances seem to be used to finance
consumption or investment in human capital, such as education, health, and better nutrition,
which can compensate for the negative impact of brain drain (Adams et al., 2008)
Foreign Aid Assistance (Aid). Net official development assistance is disbursement flows (net of
repayment of principal) that meet the DAC definition of ODA and are made to countries and
territories on the DAC list of aid recipients. The proponents of foreign aid argue that targeted aid
can contribute towards the eradication of poverty in developing countries (Arndt et al. 2010,
2015; Sachs, 2005; Stiglitz, 2007).
Information and communication technology (ICT): This variable is measured by internet

user‟s ratio: the number of people with access to the world wide network divided by the total
population (individuals using the Internet as % of the population). Proponents of ICTS take an
optimistic view and highlight the positive effects of different ICTS in creating new economic,
social, and political opportunities for developing countries and the poor (Tiwari, 2008). They
argue that ICTS can contribute to economic development as a sector of economic activity or can

enable productivity of other sectors of the economy (Chacko, 2005). Based on this optimistic
view, many development agencies and organizations tend to suppose that ICTS have the capacity
to bring about a reduction in poverty. This is because challenges that arise from poverty have an
information, communication, or knowledge component.
Population growth rate (Population): Annual population growth rate. Population is based on
the de facto definition of population, which counts all residents regardless of legal status or
citizenship.
Public investment (investment)
There is more evidence that public capital is productive, in the sense that it complements private
capital and other factors of production and thereby, exerting a negative impact on poverty, Fan et
al. (2004b). There is a clear need to be careful with the choice of the optimal investment level and
allocation across sectors. The case for a rise in public investment needs to be assessed on a
country-by-country basis, according to the structure of its economy and its initial physical public
capital stock. There is also abundant evidence, although sometimes controversial, on the poverty
impact of public investments in areas such as transport and communications, irrigation and
agricultural research and development (R&D).
Table 2: Variables, description and sources

Variables Description Expected sign Sources
MW minimum wage - UNSD
PH Poverty headcount ratio at $1.90 a day - PovcalNet
Poverty Gap Poverty gap at $1.90/day (2011PPP). - PovcalNet
Growth GDP per capita, PPP 2011. - (WDI)
ICT The internet user‟s ratio: - WDI
Aid Net official development assistance. + WDI
DEBT Total external debt stocks to GDP + WDI
Remittances Remittances in real terms - WDI
Population Annual population growth rate. + WDI
Government Government final consumption - WDI
consumption expenditures

Investment Gross Fixed Capital Formation (%Gdp) + WDI

Source: Author from UNSD, WDI, PovCalNet and literatures (for the expected sign).
Public goods (government consumption): This variable is measured by Gross Fixed Capital
Formation (% GDP). Policy making needs to change so that we do not endlessly "forget" about
the poor Rao, (1999). The question is how we can anchor concerns for ending poverty through
government consumption especially on public goods, both nationally and internationally.
2.7 Estimation techniques and presentation of results
The purpose of an empirical approach is based on two factors: the estimation of the model and
above all the analysis of the results or their comments. This phase results in the validation or the
invalidation of the initial hypothesis. This study uses the panel data in its econometrics analysis
techniques such as the OLS, fixed and random effects as well as the IV estimation methods, over
the period 2004-2016. Let's start first with the estimation of the model.
2.7.1 Model estimation technique

The data used in econometrics are most often time series or cross-sectional data for a given
period. Panel data, or longitudinal data, have the two previous dimensions (individual and
temporal). Indeed, it is often interesting to identify the effect associated with each individual (an
effect that does not vary over time, but that varies from one individual to another). This effect can
be fixed or random.
(1)6
i 1...N t 1...Ti
We use a notation with two indices, i for the individual i and t for the time. The explanatory
variables Xk it, are time-varying, while the variables zpi are time-invariant factors of the explanatory
variables. The double dimension offered by panel data is a major advantage. Indeed, while time
series data allow us to study the evolution of relationships over time, they do not allow us to
control for heterogeneity between individuals. Conversely, cross-sectional data allow for the
analysis of heterogeneity between individuals, but they cannot take into account dynamic
behavior, since the temporal dimension is excluded from the field of analysis.
6 This equation is considered throughout this first part of the study as our baseline equation and will be used to obtain our baseline results
subsequently.

Model (1) is first estimated by OLS. OLS regression is a method for estimating the coefficients of
a multivariate linear regression by minimizing the sum of squares of the residuals. OLS
regression allows obtaining BLUE estimators given the underlying assumptions made thereof.
However, the estimation of this model by OLS suffers from some shortcomings. Mainly, this
method does not allow for individual heterogeneity. Moreover, OLS does not correct the
endogeneity7 problem.
By using panel data, we can exploit the two sources of variation in statistical information:
Temporal or intra-individual variability and individual or inter-individual variability. The
increase in the number of observations makes it possible for the precision of the estimators, to
reduce the risks of multi-collinearity and above all to widen the field of investigation.
Theoretically, the proposed method assumes that the individual dimension is infinite (we can take
hundreds or thousands of countries) and that the temporal dimension is finite. Hence there is an
interest in controlling for individual heterogeneity which can be assumed to be fixed or random.
The fixed effects model
The fixed effects model assumes that the relationships between the dependent variable and the
explanatory variables are identical for all individuals. If we consider N individuals, observed over
ti time periods and k explanatory variables, the model is written then:
Yi t,  i kK1k Xk i t, , i t, (2)
i represents the individual specificity, assumed to be fixed.
Assumptions
The residues i t, are assumed to be i.i.d. and satisfy the following conditions, and i
1;N;t 1;T : i
Ei t,  0
7 Regressors are said to be endogenous when they are correlated with the error term. In cases where there is likelihood for endogeneity, the
instrumental variable procedure is used.

2 t  s
Ei t, i s,  0  t s
which implies
E
  
i t,i s,
2
 IT ; where IT is the identity matrix T Ti, i .
Ei t,j s,    0; j i; t s, 
The individual fixed effects model has a residual structure that tests the standard OLS
assumptions. It is in fact a classical model with individual indicative variables.
The random effect model
The random effect model assumes that the individual specificity is in random form. The constant
term specific to individual i is random. It is decomposed into a fixed term and a random term
specific to the individual allowing controlling the individual heterogeneity. By grouping the
random terms of the model, we obtain a compound error structure.
As we decompose the constant in the fixed effects model, in the random effects model we must
decompose the residuals. It is in the residuals that the omitted explanatory variables interact. The
model is always written as follows
yi t,  i k k Xkit p pzpi  i t, i 1...N t 1...Ti (3)
The individual random term αi is then decomposed as follows:
  i   i
denotes the fixed component and i the individual stochastic, unobservable component such as
the level of compliance to minimum wage, in the context of a panel q of countries. This results in
a compound error model that is expressed as follows: yi t,   k k Xkit p  pzpi  i i t, i
1...N t 1...Ti (4)

Generally, we are led to make a certain number of assumptions about this structure of residues.

Residual assumptions.
The residuals are assumed to be i.i.d. and satisfy the following conditions:
E u i  E  0 i t,
E u ii t,  0
E uu
 
ij u
2
if i= j; 0 otherwise
E
  i t, s t,  
2
i=j and t=s, 0 otherwise.
E u x ii t',  E i t, xi t',  0
Under these assumptions, the variance of the endogenous variable yi t, conditional on the
explanatory variables Xkit is then equal to (We use a compound error structure where only the
individual component is taken into account. It is possible to include a temporal component.) 
u2  2 .
To the previous estimates, regression analysis is followed in which the two-stage least squares
instrumental variable regression estimator (IV-2SLS) of the panel data is chosen as the preferred
regression tool following the endogeneity problem in the regression models, making the use of
the ordinary least squares (OLS) estimator inappropriate.
The IV-2SLS estimation technique is well suited to the analysis of structural equations that suffer
from the endogeneity problem, resulting from reverse causality between dependent and
independent variables, and/or omitted variable bias, and/or measurement errors. It is essentially
an alternative to the OLS estimation technique which, in case of endogeneity problems, produces
biased estimates. The endogeneity problem in panel data is likely to be detected from statistical
evidence of correlation between the error term and the explanatory variable(s).

In this case, the assumption of OLS estimation that the error terms are independent of the
regressor(s) is violated and the effectiveness of the OLS estimator in generating unbiased
estimates is marginalized. Thus, the IV-2SLS estimation technique provides a solution to this
problem by incorporating instruments into the econometric model(s) (Angrist and Imbens 1995;
Benda and Corwyn (1997). The choice of instruments is crucial in determining the outcome of
regression estimates. Instruments are used to modify the problematic endogenous regressor(s)
that are correlated with the error term. A credible IV must be an exogenous variable that can
directly affect the endogenous variable while indirectly influencing the outcome variable in the
regression model.
2.8 Presentation results, interpretation and discussion

These results allow us to answer the first specific question, which is to determine if the minimum
wage have a significant effect on poverty in Sub-Saharan Africa. The descriptive statistics
relative to the different variables of our study are presented in (table 3) below.
Table 3: Descriptive Statistics and the normality8 test
Variable Obs Mean Std. Dev. Min Max Skewness Kurtosis

Poverty Headcount 64 38.592 26.266 .2 94.3 .047 1.811
Index
Poverty gap 64 15.864 13.712 0 64.1 .868 3.626
Minimum Wage 252 2.569 9.343 -24.353 45.022 .703 5.419
GDP per capita 364 2119.81 2221.592 215.155 9833.613 1.527 4.351
ICT 364 11.131 13.477 .155 58.271 1.71 5.201
Foreign aid 364 6.977 7.228 .172 40.41 1.752 6.532
External debt 338 38.617 28.051 3.895 215.77 2.01 9.054
Remittances 348 3.178 5.639 0 41.499 4.066 22.296
Population 364 2.269 .929 -.617 3.711 -.845 2.897
Government 348 15.086 6.428 2.047 41.888 1.439 6.783
consumption
Investment 355 23.187 10.514 0 77.89 1.08 6.587
Source: Author through the use of stata 15
From the descriptive statistics table above, GDP per Capita is the variable with the highest mean,
standard deviation, minimum and maximum. Therefore, we are led to conclude that the volatility
8 Acceptable values of skewness fall between − 3 and + 3, and kurtosis is appropriate from a range of − 10 to + 10 when utilizing
SEM (Brown, 2006). The skewness for a normal distribution is zero, and any symmetric data should have a skewness near zero.
Negative values for the skewness indicate data that are skewed left and positive values for the skewness indicate data that are
skewed right. A distribution that is less peaked and has thinner tails than normal distribution has kurtosis value between 1 and 3.

of GDP per Capita to cause a change in poverty is greater than that of the minimum wage
variable which displays low volatility and other variables. The two last columns are devoted to
account for normality. Poverty headcount index is the most symmetric among the variables.
In line with our first specific question, the estimation of model (1) using the OLS estimates
(Table 4) shows that the minimum wage has no significant effect on poverty in SSA. We thus
proceed by accepting the null hypothesis. Therefore a percentage change in the level of minimum
wage has no significant effect on the level of poverty in this region. This result is consistent with
that of Sabia and Nielsen (2015) who did not also find evidence for a significant effect of
minimum wage on poverty in their study.
Table 4: Baseline results of the effect of minimum wage on poverty: OLS estimates
Dependent variable : Poverty Headcount Index

VARIABLES (1) (2) (3) (4) (5)
Minimum Wage -0.440 -0.396 -0.284 -0.0431 0.0337

(0.446) (0.339) (0.323) (0.232) (0.220)
GDP per capita -0.00655*** -0.00433*** -0.00237** -0.00173
(0.00101) (0.000889) (0.00108) (0.00121)
ICT -0.734*** -0.413** -0.374**
(0.165) (0.156) (0.157)
Aid 1.991*** 2.497***
(0.596) (0.482)
Debt -0.202*
(0.117)
Constant 33.78*** 49.91*** 54.76*** 31.94*** 33.89***
(3.842) (3.861) (4.135) (7.367) (7.224)
Observations 45 45 45 45 42
Rsquared 0.026 0.411 0.542 0.687 0.687
Robust standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1
The insignificant effect of minimum wage on poverty in SSA can be justified by the fact that the
people affected by the minimum wage are mostly in the formal sector and may not be under the

poverty line. This is in line with Boeri and Van (2013), who noticed that it is doubtful if
minimum wage can be an effective anti-poverty tool as it depends on who is affected by the
minimum wage. For instance, minimum wage applies to employees. But if most of employees are
not at risk of poverty, then minimum wage effect on poverty would not be significant. Again, low
paid workers are not necessarily members of the household Stigler (1946). These low wage
workers might have been living above the poverty line (thanks to their household) before an
increase in minimum wage. So, it is doubtful if minimum wage can help those who are at the
bottom of the income distribution Gramlich (1976).
Another justification for the insignificant effect is in terms of the disemployment effect of
minimum wage. Although a high level of minimum wage is an effective way of protecting
lowpaid workers from poverty, it might cover few such workers because of job losses, or
noncompliance by enterprises following the introduction of the high minimum wage. In Neumark
and Wascher (2008), a strong disemployment effect of minimum wage may cause wide job losses
in the case that minimum wage increases. Therefore, instead of increasing incomes, employment
earnings will dramatically fall and workers previously paid at the minimum wage will enter
unemployment and probably drop into poverty. On the contrary, workers who remain employed
will probably escape from poverty as their employment earnings will raise. When we combine
these two effects, the final result will be an insignificant effect of minimum wage on poverty. On
the other hand, a low minimum wage might cover more workers but offer a weak protection
against poverty (Saget, 2002).
Lastly, in most Sub-saharan African Countries, the distance between minimum wage and the
poverty line is big. Even though minimum wage might cover more workers, it offers a weak
protection against poverty. This is evident by the minimum wage and Poverty databases used in
this study (UNSD (2019), PovcalNet (2017)
On the other hand, GDP per Capita has a significant negative effect on poverty in regressions (2),
(3) and (4). In regression (4) for example, a 1% increase in GDP per Capita is translated into a
0.23% reduction in the level of poverty, this is in accord with Dollar and Kraay (2002). In the
same light, ICT also has a significant negative effect on poverty in this region as shown in
regressions (3), (4) and (5). The development of ICT, especially in remote areas enhance people's
economic opportunities and access to financial resources, allows people to access information on

government policies, social services, health care and education. This confirms the findings of
Alan (2005), who noticed a negative significant effect of ICT on Poverty in developing countries.
Aid has a significant positive effect on poverty as shown in regressions (4) and (5). This is
evident in Lyons (2014) who concluded that Foreign aid is hurting, not helping Sub-Saharan
Africa. Lastly, debt has a significant positive effect on poverty as seen in regression (5).
Table 5: The effect of minimum wage on poverty: Fixed effect and random effect estimates
Fixed effect Random Effect

VARIABLES
(4) (5) (6)
(1) (2) (3)
Minimum Wage -0.147 -0.124 -0.109 -0.151 -0.125 -0.0748

(0.113) (0.109) (0.103) (0.110) (0.105) (0.107)
GDP per capita -0.004** -0.00828 -0.0059*** -0.0055***
(0.0025) (0.0057) (0.00144) (0.00198)
ICT 0.0202 -0.0418
(0.106) (0.0739)
Aid 0.579 0.900***
(0.338) (0.312)
Debt 0.0605 0.0459
(0.0456) (0.0472)
Constant 33.00*** 43.58*** 46.26*** 36.25*** 49.97*** 40.54***

(0.757) (6.290) (12.34) (5.356) (5.289) (6.178)
Observations 45 45 42 45 45 42
R-squared 0.071 0.183 0.505
Number of id 22 22 20 22 22 20
Standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.1
The results from the fixed effect and random effect estimates are similar to that of the baseline
result. Both of the estimates show that the effect of the minimum wage on poverty is

insignificant. Once again, we accept the null hypothesis that the minimum wage has no
significant effect on poverty in SSA. The justifications are the same as those in the baseline
results. It is evident that the random effect estimate gives us better results than the fixed effect
mode. However, results show the model is not well fitted as compared to what we observed from
the OLS regression especially when we have to judge by the R-squared. It is for similar reasons
that higher level estimates (GMM) were not used in the estimating our model in this first part of
the work.
Table 6: Robustness check with IV estimates

VARIABLES
(1) (2) (3) (4) (5)
Minimum Wage 4.050 1.555 0.290 0.300 0.113

(3.159) (1.363) (0.740) (0.588) (0.700)
GDP per capita -0.00746*** -0.00448*** -0.00153 -0.00133
(0.00144) (0.000881) (0.00107) (0.00130)
ICT -0.824*** -0.440*** -0.472***
(0.186) (0.154) (0.152)
Aid 2.917*** 2.700***
(0.789) (0.938)
Debt 0.0327
(0.0961)
Constant 25.71*** 49.62*** 58.16*** 27.32*** 28.25***
(9.500) (7.094) (5.461) (8.428) (8.728)
R-squared 0.877 0.084 0.579 0.785 0.766
Hansen 0.241 0.746 0.424 0.183 0.119
Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

It statistically important to robust the initial test results in order to be certain and concrete in the
final conclusion. The first robustness check of the study is the IV estimate. Results from this
estimation technique confirm the baseline, fixed effect and the random effect results. From the
results of the IV estimate, we once more sum up by affirming that the minimum wage has no
significant effect on poverty in SSA. Although the sign of the coefficient of the minimum wage
changes from negative in this test, it has no importance to the results since it is insignificant.
Table 7: Robustness check with Alternative measure of poverty using the IV estimates
Dependent variable: Poverty Gap
VARIABLES
(1) (2) (3) (4) (5)
Minimum Wage 2.186 0.954 0.345 0.372 0.310

(1.639) (0.754) (0.440) (0.357) (0.426)
GDP per capita -0.00342*** -0.00196*** -0.000268 -0.000326
(0.000793) (0.000460) (0.000510) (0.000615)
ICT -0.406*** -0.189** -0.200***
(0.111) (0.0771) (0.0729)
Aid 1.669*** 1.580***
(0.462) (0.564)
Debt 0.0291
(0.0563)
Constant 9.486** 20.57*** 24.78*** 7.156 7.159
(4.783) (3.928) (3.250) (4.522) (4.725)

R-squared 0.396 0.342 0.432 0.720 0.707

Hansen 0.355 0.668 0.496 0.315 0.158

It is important to robust the results using another measure of poverty, the poverty gap. The results
still shows that the minimum wage has no significant effect on the level of poverty in SSA. At
this point, we, in accordance with literatures have an idea of the final decision, before deciding on
the the side to take, it is of great importance to add some controls and observe if the minimum
wage will be significant. Even with additional controls the results are still insignificant as seen
below.
Table 8: Robustness check with additional control using the IV estimates
Dependent variable : Poverty Head count Index

VARIABLES (1) (2) (3) (4)
Minimum Wage 0.711 0.0592 0.188 0.358

(0.652) (0.518) (0.646) (0.659)
GDP per capita -0.00405** 0.00168 -0.000234 -0.00112

(0.00162) (0.00127) (0.00178) (0.00135)
ICT -0.0193 -0.373*** -0.466*** -0.459***

(0.245) (0.137) (0.147) (0.147)
Aid 2.366*** 2.427*** 2.950*** 2.984***

(0.874) (0.733) (1.001) (0.864)
Debt -0.101 0.234** 0.110 0.00481

(0.104) (0.105) (0.0999) (0.0842)

Remittances -5.736***
(1.742)
Population 16.79***
(5.123)
Government consumption -0.613
(0.508)
Investment 0.145
(0.280)
Constant 45.57*** -23.94 29.97*** 22.93***
(9.534) (16.19) (8.146) (8.863)
Observations 28 29 29 29
R-squared 0.854 0.836 0.772 0.766
Hansen 0.0671 0.568 0.269 0.0986
The results of the estimation from all the methods are in accord; thus, the estimated model is
robust for accuracy in conclusion. Even with the addition of other controls to the model, the
initial results still hold. Therefore, the minimum wage has no significant effect on poverty in SSA
as theories predicted and as evident by the literatures mentioned earlier. However, (a) as the
urban and formal sector grows, the experience of the effect of wage regulation on the poverty will
become significant, (b) there can be spillover effects on the uncovered sectors and (c) minimum
wage policy will is particularly be progressive in the covered sectors in Sub-Saharan Africa. For
these reasons, we believe that an empirical overview of minimum wages in the region is
important for the current policy and analytical discourse.
Conclusion of the first part
The main objective of this part is to examine the effect of the minimum wage on poverty in
SSA(SSA) region over the period 2004-2016. This study uses recent dynamic panel estimation
techniques, including those methods which deal with endogeneity concerns. To test the
robustness of the results, the study uses three different proxies for poverty. The main finding of
the study is that minimum wage does not have statistically significant poverty reduction effect.
The results are consistent across all the three poverty proxies. On the other hand, the study found
that income per capita, ICT, Remittances and Government consumption have poverty-reducing
effect.


PART TWO
THE EFFECT OF MINIMUM WAGE ON INEQUALITLY IN SSA

Introduction to part two
Confronting inequalities has moved to the forefront of many global policy debates as a consensus
has emerged that all should enjoy equal access to opportunity. 'Leave no one behind' serves as
the rallying cry of the 2030 Agenda for Sustainable Development. Overall, since the 1990s total
global inequality (inequality across all individuals in the world) declined for the first time since
the 1820s. Reinforcing this trend, we have mostly seen income inequality between countries
decline. Yet income inequality within countries has risen, this is the form of inequality people
feel on a daily basis.
For the most part we have seen income inequality between countries in SSA improve in the last
15 years, meaning average incomes in these countries are increasing at a faster rate. This can be
accredited to strong economic growth in Nigeria, South Africa and and other growing economies
like Botswana. However, the gap between regions is still considerable. For example, the average
income of people living in North America is 16 times higher than that of people in sub-Saharan
Africa. Despite progress in some regions, income and wealth are increasingly concentrated at the

top. An Oxfam (2020) report shows that in the 10 years since the financial crisis, the number of
billionaires has nearly doubled, and the fortunes of the world's super-rich have reached record
levels. In 2018, the 26 richest people in the world held as much wealth as half of the global
population (the 3.8 billion poorest people), down from 43 people the year before. This matters
because rapid rises in incomes at the top are driving and exacerbating within country income
inequality. From 1990 to 2019, the share of income going to the top 1 per cent of the global
population increased in 46 out of 57 countries with data. Meanwhile, in more than half of the 92
countries with data, the bottom 40 per cent receive less than 25 per cent of overall income.
We will present in this second part two chapters; chapter three dwells on the review of theoretical
and empirical literature; chapter four throws more lights on the stylized facts, methodology,
results and interpretation/discussion of results
CHAPTER THREE
LITERATURE REVIEW ON THE EFFECT OF THE MINIMUM WAGE ON INEQUALITY

IN SSA
Introduction for chapter three

The consensus in most literatures is that the minimum wage is an instrument of the labor market
introduced because of the principle of fairness and dignity for workers who are incapable of
covering the basic personal and household needs. Some specific studies show that the minimum
wage contributes to reducing inequality, especially if combined with collective bargaining 9.
Collective bargaining also plays a central role in ensuring more equal outcomes for women and
youth. Some authors present some alternative instruments which can be seen as complementary
to the minimum wage policy. The combination of several instruments enables a more efficient
and faster achievement of goals that the minimum wage fails to realize, before all a higher
income for the poor and low-wage workers. As we shall see in this chapter, most findings from
the literatures show that if the target group for the study of distributional effects is at the bottom
end of the income / wage distribution, the minimum wage can help reduce inequality.
9 The declining influence of collective agreements on the wage distribution has narrowed the range of negotiated earnings to its
lower limit. More precisely, it should be noticed that leveling revenues down to the wage floor is accounted for by the deviation
from, rather than the reinforcement of the collective bargaining norm.

3.1 Theoretical literature review

The theory of distribution. Freeman (1996) present the redistribution theory discusses how the
minimum wage shifts the earning towards the lower end through three mechanisms. The first
mechanism is the consumers of products made by minimum wage employees. The minimum
wage increases the cost of production of these goods and services, which in turn increases their
prices. Therefore the wage of the low-wage workers is increasing while the purchasing power of
other people's income decrease, thereby altering equality. The corporations that hire minimum
wage workers are the second mechanism used in the redistribution theory, specifically through
the stakeholders. By increasing the wages of the workers, profits decrease due to the increased
cost of production. Lowered profits shared by decreasing the income of the stakeholders, usually
at the higher end of the wage distribution, while the minimum wage raises the incomes of the low
wage workers. Basic economic theory shows that in a perfectly competitive labour market, the
minimum wage acts as a price floor, thereby creating unemployment. Some low-wage workers
are paying for the minimum wage increase. Using this mechanism, increases to the minimum
wage decrease the wages of low-wage workers due to the unemployment, and income inequality
would become larger. An important fact about this mechanism is that there are multiple studies
that provide evidence that the minimum wage does not decrease employment; with some studies
showing employment increases after the minimum wage was raised.
The marginal productivity theory of income inequality. This theory States That Wage
Disparity is caused by differences in skill level. Higher Skilled People Have Higher Wages While
Lower Skilled People have lower wages. The connection between the minimum wage and
inequality using the marginal productivity theory relies on there being three separate levels of
ability, high ability, low ability, and lowest ability. The low ability workers are the ones who
earn the minimum wage (including those who would be affected by increases to the minimum
wage). "High ability workers are those who earn above the minimum wage and lowest ability
workers are those in the uncovered sectors that earn below the minimum wage. Most importantly,
wage inequality looks at the comparison between the lowest ability workers and the high ability
workers. Again, this theory provides three main explanations. The first explanation relates to
work in the covered sectors becoming more attractive when the minimum wage is increased. As
labour-force participation in the covered sector increases, the labour-force participation rate in the
uncovered sector decreases. This drop in labour supply causes the wage in the uncovered sector

to increase. With the increase to the wage of the lowest skilled workers without an increase to
high-skilled workers, inequality decreases. The minimum wage creates excess labour supply with
people trying to move out of the uncovered sector and entering the labour force, disemployment
effects in the covered sector cause a flood of labour supply into the uncovered sector, which
lowers the wage in the uncovered sector. In this instance, the wage of the lowest-skilled workers
decreases relative to the high skilled, thereby increasing inequality.
The minimum wage increase could result in an excess of labour supply in the covered sectors, but
the wage in the uncovered sector is below the lowest acceptable wage of the workers who
become unemployed. This could lower the labour supply in the uncovered sector, thereby raising
the wage of the lowest skilled workers and decrease inequality. Finally, we will be looking into
the idea of the minimum wage having a quadratic relationship with income inequality. The main
theory behind including this term is based on the findings of the authors, Manning, and Smith
(2014), who used the quadratic term to capture the affects of the minimum wages in areas where
it acts as a more binding price floor due to differing labour market conditions. The theory is that
the minimum wage is more effective when the price floor is binding, since when the minimum
wage is too low, it will not have the same effect on income inequality as it does when the
minimum wage is much higher. The quadratic term will allow us to show that small increases to
the minimum wage will alter income inequality at a different rate than large changes. The
quadratic will possibly be able to provide us with a maximum effectiveness value, since if the
previous theories are correct, there will eventually be a disemployment effect caused by increases
to the minimum wage. Therefore, we can hypothesize that there is a point at which the minimum
wageno longer lowers income inequality, and instead starts to increase it due to the
disemployment effects.
The human capital theory: This theory states that people increase their future earnings by
forgoing current earnings and spending money on their education. The market for
collegeeducated workers represents the market for skilled workers, since receiving a college
education signals a higher skill level to employers. Therefore, increases to the supply for college-
educated workers decreases the price of skilled workers, thereby decreasing income inequality.
"We thereby hypothesize a negative relationship between the amount of the population with
college degrees and income inequality. Related to the human capital theory is the idea that

immigration is related to income inequality. Immigration tends to be less educated, and therefore
look for jobs in the unskilled labour market.
Countries with higher levels of immigration would see an increase in supply of unskilled workers,
which would cause unskilled wages to decrease. Therefore we hypothesize that increases in
immigrant populations within a country would lead to an increase in inequality through the
increase of workers with lower levels of education. Theory that affects income inequality is
technological growth. Bound and Johnson (1992) empirically looked at the effect of technological
changes on inequality along with other factors. Their conclusion was that the many factors have
caused increased inequality, but the "computer revolution" and rapid 29 growth in technology has
had the most prominent effect. Increased technological growth requires higher levels of
education, which would create higher demand for skilled workers, causing inequality to rise.
From all of these factors, we can hypothesize that changes in human capital have a strong affect
on income inequality.
Another main theory behind the increased income inequality is the shift away from
manufacturing jobs, which has led to a decrease in unionization. Since industrial manufacturing
jobs were higher paying jobs for unskilled workers, a decrease in the manufacturing sector jobs
would lead to unskilled workers looking for jobs in service industries, which do not usually pay
as much. Increased demand for unskilled service jobs combined lowers wages for unskilled
workers, thereby increasing inequality. "The decrease in manufacturing jobs has also caused
unionization rates to fall. Since unions are one of the main tools used to raise the earnings of
unskilled workers, decreases in unionization should increase inequality. Freeman (1993) found
that decreased unionization has increased inequality, although the effects have been fairly
minimal. Overall, we hypothesize that lower supplies of manufacturing jobs will increase income
inequality though increased demand for unskilled service jobs and lower unionization rates.
Increases in FDI are related to the sectorial shifts to manufacturing jobs in many developing
countries. Since wages for manufacturing jobs are cheaper in developing countries, increases in
FDI has caused many labourers to move into the formal sector, thereby causing part of the shift
away from manufacturing sectors in developed countries. We hypothesize that FDI does not
directly affect income inequality, but instead affects the size of the manufacturing sector, which
then affects inequality.

The extent to which the control variables affect income inequality depend on multiple factors
Card and Krueger (1995). The first factor is the coverage rate of the minimum wage. Marginal
productivity theory relies on there being a large uncovered sector, or at least large enough to have
a measurable effect on the economy. SSA countries have minimum wages that cover almost all of
the Employed population; the minimum wage increases should not lead to a change in the wages
for uncovered workers at a significant enough level to affect income inequality. This leads to the
redistribution theory being prevalent. Within the three mechanisms discussed earlier, we tend to
see an order to how they take effect. The simplest way to pay for an increase to the minimum
wage is through decreases in profits and salaries of higher-level employees and executives.
Notably, the salaries of employees will most likely not actually decrease, but will simply not
grow as quickly as the minimum wage increase. Through this mechanism, the wages of workers
at the lower end of the income spectrum would increase relative to those at the higher end,
thereby decreasing inequality. The second step in the redistribution theory would be to increase
prices to pay for the minimum wage, thereby affecting consumers' purchasing power. This would
also be seen more in smaller companies that have a harder time decreasing profits and salaries.
Again, by increasing the income of low-wage workers, we expect to find decreases in inequality.
Finally, we hypothesize that the last step in the process would be to lay off workers earning the
minimum wage. This hypothesis is based on the previous research presented by Card and
Krueger (1995), which showed that increases to the minimum wage do not decrease employment.
We do believe that there could be a level of the minimum wage where disemployment effects are
observed, even though this was not the case in the Card and Krueger's research. If this is true,
then we expect to see a nonlinear relationship between the minimum wage and income inequality.
3.2 Empirical literature Review

The connection between the minimum wage and income inequality is a topic that has been looked
at from multiple angles. DiNardo et al. (1996) looked at the decline in the real value of the
minimum wage from 1979-1988 and saw how this affected wage differentials between multiple
pairings of different percentile wages. This study started by analyzing kernel density functions of
hourly wages in order to observe the wage distribution. An important discovery noted is that for
many years, the observed distribution has large amount of clustered data points around the value
of the minimum wage. "DiNardo et al. then continued to analyze these distributions in order to
explain the effects of declining real minimum wages on different wage differentials through this

time period. That were the most affected by the falling value of the real minimum wage were the
ones between the 10th and 90th percentiles and the 10th and 50th percentiles. They found that
just for the wage differentials in men, the 27 percent decline in the real value of the minimum
wage"explains 25 percent of the change in the 10-90 differential [and] 66 percent of the change in
the 10-50 differentials." These values are even greater when looking at the results presented about
women. DiNardo et al. show how changes to the real value of the minimum wage can affect wage
differentials between high-income and low-income workers.
Card and Krueger (1995) also present another important study finding the relationship between
the minimum wage and inequality in their book, Myth and Measurement. After briefly
mentioning that recent labour market data gives no support to the standard economic theory that
discusses the disemployment effects of the minimum wage, Card and Krueger show how
increases in the federal minimum wage halt and temporarily reverse the trend of growing income
inequality in the United Sates over the last 30 years. The effects are only temporary, since in
years after the minimum wage increases, inequality continues to rise again. Card and Krueger
also warn that these changes to the level of inequality are small since these increases tend to only
increase the incomes of the lowest-paid workers by a fairly small amount, usually around 10-15
percent. Therefore the effects tend to seem small, although they are statistically significant.
In Europe, several studies have found that the erosion of minimum wages is correlated with
considerable increases in overall inequality (Beramendi and Rueda 2014; Checchi and García
Peñalosa 2008). According to Jaumotte and OsorioBuitron (2015), in the Netherlands over the
period 1980–2010 a 16.5 per cent decrease in the minimum wage contributed to a 2.4 per cent
increase in inequality, as measured by the Gini coefficient. In Romania, Militaru et al. (2019)
conducted an income distribution analysis based on two simulations using household survey data
from 2013. Both approaches led to similar findings, indicating that the minimum wage tended to
reduce wage inequality especially for women, who are over-represented among lower-paid
employees and that household disposable incomes become less unequal when the minimum wage
increases.
Some studies have suggested that the relationship between the minimum wage and inequality is
non-linear. One of these (Litwin 2015) calibrated an econometric model, controlling for a broad
range of determinants of inequality, to investigate the role of minimum wages using a panel of 17

member countries of the Organization for Economic Co-operation and Development (OECD)
over the period 1980-2010. Although the study concluded that increases in the minimum wage
caused income inequality to decrease, the estimated relationship was non-linear. Indeed, we
highlight that when minimum wages are set beyond a "maximum effectiveness value", equitable
returns diminish and the positive effects of minimum wages start to be reversed. Similarly,
Karakitsios and Matsaganis: (2018) find that inequality decreases when minimum wages are
increased, but that the redistributive effect is markedly weaker when the minimum wage is set
above an optimal level.
While a similar picture can be observed in developing countries, an additional concern for many
of these is the prevalence of the informal economy. In some cases, informality represents up to
80 per cent of a country's workforce, meaning that large numbers of workers may be excluded
from any minimum wage support. At the same time, the capacity for enacting and enforcing
labour laws, including those relating to minimum wages, tends to be weaker in developing
countries. However, in some cases the implementation of a minimum wage in the formal sector
can trigger wage increases in the informal sector through the so-called "lighthouse effect",
thereby reducing income inequality. This has been demonstrated by a panel study of 19 Latin
American countries over the period 1997-2001 (Kristensen and Cunningham 2006). Wes found
that minimum wages increased pay at the bottom end of the earnings distribution and were
generally associated with lower dispersion of earnings, since minimum wages lifted earnings in
both the formal and informal sectors.
Another study focusing on Latin American countries (Cornia 2012) highlighted that increases in
legally mandated minimum wages over the previous decade had reduced the disparity between
minimum and average earnings, tending to equalize the distribution of earnings across the
informal and formal sectors.
Empirical evidence from emerging economies suggests that minimum wages can effectively
reduce inequality in these countries. One study of Brazil (Engbom and Moser 2018) developed
an equilibrium search model to assess the impact of an increase in the minimum wage on the
dispersion of earnings. The study used the estimated model to evaluate the distributional effects
of an increase in the real minimum wage by 119 per cent over the period 1996-2012. Wes found

that this increase explained a large decline in earnings inequality. Meanwhile, employment and
output fell only modestly as workers reallocated to more productive firms.
In a study using household data from urban Mexico to analyze the contribution of the decline in
the real value of the minimum wage to earnings inequality from the late 1980s to the 2000s,
Bosch and Manacorda (2010) found not only robust evidence of a negative relationship between
the real value of the minimum wage and earnings inequality in Mexico, but also that essentially
all of the growth in inequality at the bottom end of the income distribution could be explained by
the steep decline in the minimum wage. In China, Lin and Yun (2016) investigated the
relationship between the minimum wage and the rise in earnings inequality over the period
200409 using city- level minimum wage panel data and representative China household survey
data. Interestingly, we found convincing evidence that increasing the minimum wage reduces
inequality by closing the earnings gap between the median and bottom deciles.
Other contributors in the literature are less convinced by the potential impact of the minimum
wage in reducing income inequality. In New Zealand, for instance, Alinaghi, et al. (2019)
examined the potential impact of an increase in the minimum wage on inequality and poverty
using a micro simulation model, which also allows for the effects of that increase on labour
supply. The results suggested that the increased minimum wage had only a marginal impact on
the dispersion of the income distribution. The argument for this finding, which is consistent
across several measures of inequality, can be explained by the composition of household
incomes: many minimum wage earners are secondary earners in high-income households, while
many low-income households have no wage earners at al. A study of Colombia between 1984
and 2001 (Arango and Pachón 2004) found that the minimum wage improved the earnings only
of those in the middle and upper parts of the income distribution. This, however, appears to be a
result of the high value of the minimum wage.
Wu, et al. (2006) did another study looking at the effects of a wide range of government policies
on income inequality, primarily looking at the different effects of the policies on urban versus
rural populations. Instead of only looking at wage differentials, Wu et al. (2006) used four
measures of inequality, including the Atkinson index, the Gini index, coefficient of variation of
income, and the relative mean deviation of income. Other than the minimum wage, this study
looks at different tax policies and welfare systems in the United States and builds a model using

panel data for the 50 states between 1981-1997. Important variables included in Wu et al.'s model
are the GDP and Unemployment rate for each state to account for macroeconomic conditions.
The results shown by this study pertaining to the minimum wage contradict the study done by
Card and Krueger (1995), since in urban areas; increases in the minimum wage create
disemployment effects, mostly for workers from low-income families. The hypothesis presented
for this is that the minimum wage is not means tested, so a large portion of minimum wage
workers are teenagers from well-off families.
Wu et al. (2007) find that the teenagers disproportionately are able to keep their jobs while
workers who rely on the minimum wage job suffer from the disemployment. "The results are very
different in urban areas, since the minimum wage is shown to have no statistically significant
effect on income inequality.20 Therefore, we will include data in our analysis to control for how
much of the population lives in urban areas. Again looking at multiple labour market institutions
simultaneously, Koeniger et al. (2007) analyze data from eleven OECD countries to see how
different laws and regulations, such as the minimum wage, affect inequality. They used a feasible
fixed-effects GLS estimator to determine the effects of these institutions on the wage differential
of the 90th and 10th percentiles. Their estimation results show that the minimum wage has a
highly statistically significant negative relationship with income inequality.
By also looking at the 90-50 and 50-10 wage differentials, Koeniger et al. are able to see if there
are altering effects of these institutions on the upper part and lower part of the wage distribution.
For many of the institutions however, including the minimum wage, both halves of the
distribution are affected similarly. Therefore we can see that labour market institutions that
seemingly only affect those at the lower end of the income distribution actually affect the entire
economy. An important note made by we is that developing economies are fairly well connected
in many aspects; therefore changes in inequality are likely to be caused by changes in
countryspecific institutions, such as the minimum wage. This work provides a model for
comparing multiple countries within the SSA region.
Neumark et al. (2005) apply a nonparametric method to estimate the minimum wage effect on
income inequality, analyze several inequality measures (e.g., Gini coefficient, coefficient of
variation, standard deviation, and Atkinson index) and find that a rise in the minimum wage can
increase inequality. However, using data from 1979 to 1991 at the state level, Lee (1999) finds

that the falling real minimum wage can explain from 70 to 100% of the growth in wage inequality
in the lower tail of the female wage distribution and argues that declining the minimum wage
accounts for a substantial part of the growth in inequality in the US from 1979 to 1991.
Autor et al. (2016) find that the minimum wage reduces wage inequality in the lower tail of the
wage distribution (the 50/10 wage ratio), but the effects are typically less than half as large as
those reported in Lee (1999) and are almost negligible for males. Taken together, most findings
from the U.S. show that if the target group for the study of distributional effects is at the bottom
end of the income / wage distribution, the minimum wage can help reduce inequality. Evidence
outside the U.S. is also limited, focusing primarily on Central and South American countries.
The World Bank (2006) finds that the distributional effects of the minimum wage are ambiguous
in Central and Southern America. Both positive and negative effects are found; however, the
results show that the minimum wage has no effect on poverty and that the effect on inequality
varies from country to country.
Neumark et al. (2006) use a before-and-after method to study whether the minimum wage can
help improve income inequality in Brazil and find that although the minimum wage has a positive
effect on the income distribution at the 20th percentile, there is no effect at the 10th and 30th
percentiles. Moreover, when a lagged minimum wage is added, the results show a significant
negative effect. They also find that the results are not robust in different model specifications,
and they ultimately conclude that the 5 evidence from Brazil shows that the minimum wage does
not reduce inequality. Gindling and Terrell (2007) use industry-level data from 2001 to 2004 in
Honduras to study the effect of the minimum wage on the income distribution and find that the
minimum wage has an effect in reducing inequality. Bosch and Manacorda (2010) study the
effect of the minimum wage on inequality in Mexico from the late 1980s to the early 2000s.
They find that the Mexican minimum wage can explain a large part of earnings inequality in
Mexico, and they show that at the bottom end of the earnings distribution, most of the growing
inequality can be attributed to the rapid decline in the real value of the minimum wage.
Research on the effect of the minimum wage on inequality in developing economies is limited.
In the first empirical study in China, Wen (2007) uses pooled cross-sectional data from 2004 to
2006 at the provincial level to estimate the effect of the minimum wage on the employment and
income distribution of rural migrant workers. He finds that the minimum wage has a positive

effect on the employment and income distribution of rural migrants over the period of analysis.
Wang (2011) discusses the effect of the minimum wage on patterns in the income distribution and
economic development, and he argues that the minimum wage could have possibly reduced the
income gap in China. Using the time-series data from Chongqing City for the period between
1997 and 2010, Chen (2012) finds that increasing the minimum wage could help mitigate the
growing income gap between urban and rural areas. Wang (2013) uses a simulation method and
shows that increases in the minimum wage can reduce earnings inequality.
This research will provide new information to the literature since there has not been a lot of research done
on a transnational level, and what has been done looks mostly at the effect of microeconomic factors on
income inequality. Koeniger et al. (2007) approached their analysis from the assumption that many of the
macroeconomic forces between OECD countries were fairly standard (and fairly well connected to one
another) so their analysis only focused on the institutions that varied between countries, income
inequality, taking into account the different macroeconomic theories, we are better able to analyze this
one specific in constitution.
Conclusion for chapter three
Throughout the world, millions of workers earn the minimum wage, making it a potentially
powerful tool to reduce or contain inequality in the lower half of the wage distribution and to
reduce gender pay gaps, as women tend to be over-represented among low-paid workers. The
recent theoretical and empirical studies reviewed support the idea that carefully designed
minimum wage policies can reduce low pay, inequality, and the gender pay gap at little or no
adverse cost to employment.

CHAPTER FOUR
THE EFFECT OF MINIMUM WAGE ON INEQUALITY IN SSA: EMPIRICAL EVIDENCE
Introduction to chapter four

There are still many gaps in our understanding of the effect of the minimum wage on inequality
in SSA. In order to be able to do so systematically, we need enough cross-country databases on
the minimum wage and inequality. In particular, we need to collect more information on the
exact levels of the fluctuations of the minimum wage and inequality in all of the countries of the
region. More attention should be paid also to the three main measurements of inequality, and
especially whether and how inequality changes over the lifetime of individuals, and how
intergenerational income differential is affected by the minimum wage.
Although this study reveals no significant result in the first part, minimum wages may have a
useful role in supporting incomes for those in the lower part of income distribution, even when
they do not lift households above an "arbitrary" poverty line. What matters more than the effect
on poverty-headcounts, is whether minimum wages improve the lives of low-income households
and whether they are better off as a result of it.
This chapter is divided into two sections: Section one presents some stylized facts on inequality
in SSA. Section two presents the methodological strategy and discussions of the results. In the
methodology we present a set of tools (statistical data, analytical variables, econometric model
and estimation technique) that is used.
SECTION ONE: STALIZED FACTS ON INEQUALITY IN SSA
4.1. The evolution of inequality in SSA

As we can see from the graph below, inequality in SSA has generally witnessed a decreasing
trend from 2004-2016. The decrease in inequality becomes very sharp in 2016 as compared to
other previous years. As a Stylized fact, inequality in this is greatly determined by the high
unequal Counties such as South Africa, Namibia, Zambia, Central Africa Republic, Lesotho and
Mozambique where the Gini index approaches 60%. This Gini index is a red flag to economic
growth in this region.

Figure 3: The trend of inequality in SSA from 2004-2016
Gini index
0,6
0,58
0,56
0,54
0,52
0,5
0,48
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Author through the use of GICP (2017) and stata 15
Accordingly, countries with 'high' value of the Gini ratio may find inequality to be an important
factor in poverty reduction. Countries such as Namibia, South Africa, Gabon and Zimbabwe
would need a large increase in per capita GDP to keep poverty levels unchanged following a 1%
increase in the Gini coefficient. In other words, the growth loss associated with the task of
maintaining existing levels of poverty following a slight increase in inequality would be high. On
the other hand, if inequality declined, say by 1%, in South Africa, it would take a contraction in
per capita GDP to keep poverty from rising. Countries with low Gini values would find inequality
not to be a matter of serious concern in poverty reduction.
ECA (1999) warned that SSAwould need a substantial boost to its investment formation, as well
as some degree of reduction in income inequality, if it were to achieve this global target. ECA
(2004) extended this methodology to look at the role of initial inequality in affecting the overall
growth required to meet the poverty reduction target of the MDGs in a neutral growth scenario.
The result reported shows clearly that countries with high initial income inequality would need a
higher acceleration in per capita GDP to meet the MDGs. In other words, the higher the initial
level of income inequality, the lower the efficiency of economic growth in reducing poverty and
vice versa.
4.2 Stylized facts on the determinants of inequality in SSA

There are some stylized facts that may indicate the existence of positive correlations between
changes in income inequality and economic growth. One plausible explanation is that most
African countries within the middle-income category tend to have a higher proportion of their
GDP coming from extractive industries, such as minerals and petroleum, which are characterized

by high initial income inequality to begin with, owing to political economy factors. For example,
Bigsten and Shimeles (2003) found a strong positive correlation between long-term growth
(proxied by log of per capita income) and initial inequality
ECA (2004) reported an interesting correlation between levels of income inequality, size of land
(proxy for abundance of natural resources) and a country's degree of openness. It reports that
there is a negative correlation between population density (to measure land abundance) and
income inequality. Similarly, it also reports a positive correlation between a measure of openness
and income inequality for selected Sub-Saharan African countries.
The government in most SSA countries has been investing heavily in education, training, health
and community services (about 49% of its annual budget on average in most SSA countries), to
correct the imbalances from the colonial past and to alleviate poverty. For example, Atemnkeng
et al. (2004) studied the influence that the Cameroon government exerts on poverty and
inequality in an article titled: the redistributive impacts of fiscal policy in Cameroon. The
objective was to assess the extent to which public spending on education and health contributed
to poverty inequality reduction and redistribution of benefits among the population. Preliminary
results showed that the government has an influence on poverty and inequality.
4.3 Three conditions to be met if minimum wage is to reduce inequality
The Global Wage Report (2021) outlines three conditions to be met for minimum wage to reduce
inequality:
The first factor included the extent of the legal coverage and the level of compliance which when
combined, may be called the "effectiveness" of minimum wages. Although minimum wages are
almost ubiquitous, in many instances the legal coverage is too restricted and excludes those most

in need of labour protection, such as domestic workers, agricultural workers, home workers and
other groups of workers at the bottom end of the wage distribution. In such instances, minimum
wages may help to reduce inequality and poverty, but their impact is constrained by the fact that a
large proportion of workers are not covered by the minimum wage (see, for example, Marinakis
and Bueno 2014; Gindling 2018). The other determinant of the effectiveness of a minimum wage
and thus of its potential impact on inequality is the level of compliance, which in turn is closely
related to the level of informality in a country. Indeed, where informality is high and labour
inspection services are weak, non-compliance rates may soar. This is particularly the case in low-
income countries, where sub-minimum wage earners are mostly workers in the informal
economy.
Secondly, the level at which minimum wages are set also plays a crucial role. Adequate
minimum wage levels are required to ensure "a just share of the fruits of progress to all, and a
minimum living wage to all employed and in need of such protection", as emphasized in the
Declaration of Philadelphia (ILO 1944, Article III (d), without jeopardizing employment and the
survival of sustainable enterprises. Setting an adequate minimum wage level is thus a balancing
act between the needs of workers and their families on the one hand, and economic factors on the
other. When minimum wages are set too low in relation to economic factors and the level of
productivity in a country, they may fail to reduce wage inequality and may also fail to provide
workers and their families with a decent standard of living. In contrast, rates that are too high in
relation to the prevailing economic factors and labour productivity may lead to widespread
noncompliance and / or reduce the demand for formal employment, pushing workers into the
informal economy, with potentially negative impacts on income equality and poverty.
Thirdly, the potential of minimum wage systems to reduce inequality depends on the structure of
a country's labour force and the characteristics of the beneficiaries of the minimum wage, and
particularly on whether these live in low-income households. Some minimum wage skeptics
have argued that minimum wage earners in some countries tend to be "secondary earners" or very
young people who supplement the primary sources of income in relatively well-off households.
If a significant proportion of minimum wage earners do indeed live in well-off households, this
would imply that minimum wages have only a limited potential to reduce income inequality by
increasing the incomes of poor households. Moreover, in low-income countries where a majority

works in the informal economy, the poorest households may not have many wage earners.
Selfemployment is the main form of employment in the informal economy, and labour incomes in
the informal economy tend to be even lower for the self-employed than for wage employees. In
such circumstances, most individuals in low-income households may be own-account workers in
the informal economy. In these contexts a minimum wage policy may not be able to significantly
compress the income distribution and reduce poverty unless accompanied by efforts to generate
wage employment and reduce informality.
The above three factors points towards a set of policy implications, summarized, which
governments and social partners may wish to take into account in their deliberations; these factors
are discussed further in the next sections of this report. In particular, these factors point to the
necessity of (a) adopting effective minimum wage systems with broad legal coverage and
measures to promote compliance; (b) setting adequate minimum wage levels that take into
account both the needs of workers and their families, and the economic factors prevailing in a
country, and that are adjusted from time to time to reflect changes in the cost of living and other
economic conditions; and (c) ensuring that minimum wages are accompanied by measures that
seek to generate wage employment, higher productivity and the formalization of the informal
economy. Many of these aspects are reflected in international labour standards, such as the
minimum wage Fixing Convention (No. 131) and Recommendation (No. 135), 1970, and the
Transition from the Informal to the Formal Economy Recommendation, 2015 (No. 204 ). Other
important aspects, however, such as the need to increase the productivity of low-paying
enterprises and improve the skills of low-paid workers, are beyond the scope of these particular
instruments.
SECTION TWO: METHODOLOGICAL STRATEGY AND DISCUSSION OF RESULTS
4.4 Data source and sample size

The data for this research is collected from the World Bank and SSA database for 28 of the 48
SSA nations over the time period of 2004-2016. We are only using more than half of the
countries in the SSA since the data sets being used do not offer enough full data points for the
other less than half of the countries, including missing data values for the Gini coefficient and the
minimum wage. An important note is that countries are excluded based on the fact that neither of
these databases have full information for every country in every year being studied and that this

exclusion has no relationship to how the minimum wage and the other control factors affect
income inequality. This time period was chosen since many previous studies have seen the
growth of income inequality over the years.
Variables, description and Data source
Dependent variable
Inequality: This variable is measured by three measures of inequality: Gini index, Atkinson index
and the Palma ratio. First, the Gini index measures the extent to which the distribution of income
among individuals or households within an economy deviates from a perfectly equal distribution.
A Lorenz curve plots the cumulative percentages of total income received against the cumulative
number of recipients, starting with the poorest individual or household. The Gini index measures
the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as a
percentage of the maximum area under the line. Thus a Gini index of zero represents perfect
equality, while an index of 1 implies perfect inequality. Second, the Atkinson index then varies
between 0 and 1 and is a measure of the amount of social utility to be gained by complete
redistribution of a given income distribution. Lastly, the Palma ratio is defined as the ratio of the
richest 10% of the population's share of gross national income divided by the poorest 40%'s
share.
Independent variables:
Here we distinguish the variable of interest from the control variables.
Variable of interest:
Minimum wage: This variable is captured by the series of minimum wage figures for the
selected countries under study, implemented at country level wage reforms. These labour market
reforms raise the question of whether minimum wage laws help or hurt the poor in developing
countries. This further gives more reason for this study. Card and Krueger (1995) recommend a
continuous series of minimum wage when we want to study its effects.
Control variables
Economic growth: This variable is captured by GDP per Capita. These values are expressed in
US dollars ($) in order to ease cross-country analysis. Scholar articles hold that the relationship

between inequality and economic growth are sometimes nonlinear, it tends to have a U-shape.
This means inequality will increase in the early phase of growth especially when there's greater
inequality in the initial endowment, reaches the apex and then it will start to decrease (Kuznets
1995)
Endowment (Natural resources): This variable is captured by Total natural resources rents are
the sum of oil rents, natural gas rents, coal rents (hard and soft), mineral rents, and forest rents.
Ross (2007) notices that “surprisingly little is known” about the relationship between natural
resources and income inequality, but that resource rich countries appear to be unequal. This may
be one of the many reasons for the high inequality trends observed in South Africa.
ICT (Internet use): Internet users are individuals who have used the Internet (from any location)
in the last 3 months. The effects of ICT on inequality are less well documented. However, Kami
and Russell (2018) noticed ICT has a mix effect on inequality; on the one hand, that ICT
development leads to improvements in infrastructure are expected to expand economic
opportunities for previously underserved populations. On the other hand, ICT growth may
exacerbate inequality due to differential access and skill premiums.
FDI: Foreign direct investment refers to direct investment equity flows in an economy. A United
Nations Human Development Report (2009) suggests in fact that in an era where there is massive
infusion of modern technology, the inequality between rich and poor countries is widening. If
FDI were contributing to the widening of this inequality, it may be associated with negative
welfare effects, which could offset some of its positive effects on growth.
Environmental quality (CO2 emissions): Carbon dioxide emissions are those stemming from
the burning of fossil fuels and the manufacture of cement. Mohammad et al. (2020) noticed that a
rise in income inequality contributes to increasing CO2 emissions and vice versa in developing
Countries
Urbanization: Urban population refers to people living in urban areas as defined by national
statistical offices. Some scholars have argued that the relationship between urbanization and
income inequality could either be positive or negative (Jones and Koné, 1996; Siddique et al.
2014) or even non-linear (Wu and Rao, 2017). For instance, if rural people move to urban areas

with little or no education and skills that match the job demands of urban firms, then such
individuals either may be unemployed or may have to engage in menial jobs that pay them
significantly lower wages, thereby worsening the wage gap (Siddique et al., 2014). However, if
rural migrants are able to secure employment in the formal sector in urban areas, then
urbanization could decrease income inequality (Jones and Koné, 1996).
Employment level: Persons of working age who were engaged in any activity to produce goods
or provide services for pay or profit, whether at work during the reference period.
Size of the manufacturing10 sector (manufacturing value): Value added is the net output of a
sector after adding up all outputs and subtracting intermediate inputs. A broad sample of
advanced economies Natalija and Evgenia (IMF 2018) finds that manufacturing sector decline, in
general, is not associated with an increase in inequality but rater with a decrease. In some
countries like Denmark, France, Ireland and others, inequality declined 11 with a strong decline in
manufacturing for the three different measures of inequality that we consider (Gini, Atkinson and
the Palma ratio). This suggests that there are factors other than manufacturing can be (more)
important drivers of income inequality. However, we don't yet know the effect of the
aforementioned variable on inequality in the context of SSA, let's wait for the results.
The quality of the public sector (Government effectiveness): Captures perceptions of the
quality of public services, the quality of the civil service and the degree of its independence from
political pressures, the quality of policy formulation and implementation, and the credibility of
the government's commitment to such policies. Lee (2005) claims that fully institutionalized
democracies are characterized by lower income inequality as a result of successful targeted
redistribution since democratic political mechanisms enable state institutions to be more
responsive to the demands of the lower classes and more committed to achieving better
distributional outcomes
10 According to Helper et al. (2012), manufacturing used to provide high-wage jobs for workers who would otherwise earn lower wages,
therefore reducing inequality.
11 Lawrence (2017) states that manufacturing helped the United States achieve more inclusive income growth because it provided
opportunities for workers without a college degree to earn relatively high wages and enter the middle class.

Table 9: Variable description and sources

Variabls Description Expected Sources
Sign
Gini Measures of income distribution - GICP
Atkinson Measure of social utility gained from complete redistribution. - GICP
Palma ratio The ratio of the richest 10% /poorest 40%. - GICP
minimum wage The minimum wage - UNSD
GDP per capita GDP divided by midyear population .+/- WDI
Natural Sum of oil rents, natural gas rents, coal rents (hard and soft), + WDI
resources mineral rents, and forest rents.
Internet use Individuals who have used the Internet in the last 3 months. - WDI
FDI Direct investment equity flows in an economy. - WDI
Urbanization Urban population + WDI
CO2 emissions CO2 from the burning of fossil fuels / manufacture of cement + WDI
Employment Persons of working age who were engaged in any activity to - WDI
services produce goods or render services.
Government eff. Quality of the civil service and the degree of its independence - WGI
from political pressures.
Manufacturing Value added is the net output of a sector after adding up all - WDI
value outputs and subtracting intermediate inputs.
ODA Foreign aid as % of gross national income + WDI
Source: Author from GICP (2017), WDI (2017), UNSD (2019) and literature
4.2.3 Methodological strategy
The second specific objective of this research is to investigate the effect of the minimum wage on
income inequality in SSA. Therefore, we investigate the following equation:
(1)
Where is the set of control variables presented above.
We apply one robustness empirical estimation techniques to estimate relationship described in

Equation (1). We perform a dynamic system Generalised Method of Moments (GMM) to address
the potential endogeneity described as follows:
(2)
Where is Gini index in country i for year t. stands for the minimum wage. is the
vector of control variables including per capita GDP, natural resources, internet use, FDI and

urbanization. is the lagged of Gini index for country iin period t. are the country fixed
effect that controls for unobservable time-invariant and country-specific characteristics, is
i t,
is the error term.
period fixed effects, which account for global business cycles, and
In the literature, the method of instrumental variables using external instruments has been used to
effectively solve the problem of reverse causality (Farhadi et al., 2015). However, one of the
limitations of this approach is the difficulty of finding a purely exogenous external instrument
that varies from country to country and over time, and therefore this method tends to ignore the
endogeneity of other regressors. The GMM has the advantage of dealing with the endogeneity of
all the explanatory variables using internal instruments. Moreover, the GMM treats the
endogeneity that would come from inverse causality and produces valid instruments12.These
arguments justify the choice of the Generalized Method of Moments in this study.
Model specification (1) raises the issue of endogeneity, i.e., the reverse causality between many
regressors, notably our variables of interest, MW and the dependent variable (inequality). The
reverse causality may also occur for other variables such as, GDP per capita, natural resources,
internet use and urban population.
To solve the correlation problem between and minimum wage in equation (1), a first
difference transformation can be used to eliminate the country fixed effect :
= +β +δ +
+V
Or by using the  delay operator;
= + + + (2)
COV
Since Gini ,i t,  0, Because Ginii t, 1 is a function of
i t, 1 i t, 1 , the OLS estimate
provides a biased estimate. For an adequate estimation of equation (1), Arellano and Bond (1991)
proposed to estimate the first-difference model by instrumenting the differences by the lagged
levels (GMM in difference).
12 This validity is based on the assumption that the current-period shocks in the error term mis not linked to the past values of the
regressors and the past values of the regressors do not directly affect current value of the dependent variable (Hauk and Wacziarg, 2009).

However, the problem with this estimator is that it suffers from weak instruments (Blundell and
Bond 1998). To limit the effects of weak instruments and increase the efficiency of our estimates,
we use the system GMM of Blundell and Bond (1998). From Monte Carlo simulations, Blundell
and Bond (1998) show that the system GMM estimator is more efficient than the difference
GMM. The system GMMs consist in estimating simultaneously the first difference equation (2)
and the level equation (1) by the GMM.
In other words, we start first with the difference model (2) and the level model (1):
(3)
and we estimate it by the Generalized Method of Moments. Also, the individual dimension of our
panel which is relatively larger than its temporal dimension (T < N) justifies the choice of the
GMM system estimator (Roodman, 2009). Indeed, in addition to the advantages mentioned
above, this method allows for the instrumentalization of several explanatory variables
specifically, in contrast to some external Instrumental Variables methods, such as those proposed
by Anderson and Hsiao (1982). Moreover, it generates internal instruments from the endogenous
explanatory variables of the model.
Two main tests are associated with the GMM system: The first is the Hansen-test, through which
the validity of the instruments used is verified, in the sense that they must be correlated with the
instrumented variables and not with the error term (Hansen, 1982).The second test is the error
autocorrelation test of Arellano and Bond (1991) AR(2) which tests the first-order serial
correlation of the residuals in level, testing the second-order serial correlation of the errors in
difference, given that the error terms expressed in first difference are correlated in first order, due
to the construction of the GMM system estimator. Thus, the validity of the GMM system
estimator is 13conditioned by the quality of the instruments chosen (Hansen-test), as well as the
non-autocorrelation of second order errors in the difference in the difference equation, AR(2).
4.5 Presentation of results and discussion
These results allow us to answer the second specific question, which is whether the minimum
wage has a significant effect on inequality in Sub-Saharan Africa. The descriptive statistics
relative to the different variables of our study are represented in the table below.

Table 10: Descriptive statistics

Variables Obs Mean Std. Dev. Min Max Skew. Kurt.
Gini 324 0.585 0.041 0.488 0.852 1.876 12.878
Atkinson2 324 0.7 0.07 0.49 0.835 -0.089 2.975
Palmaratio 324 6.4 1.758 2.28 14.435 1.156 5.267
Minimum Wage 252 2.569 9.343 -24.353 45.022 0.703 5.419
GDP per capita (ln) 364 11.201 2.254 6.652 15.35 -0.098 1.991
Natural resources 364 11.365 10.695 0.001 58.65 2.031 7.68
Internet use 364 11.131 13.477 0.155 58.271 1.71 5.201
FDI 364 3.622 5.135 -5.208 39.456 3.481 19.638
Urbanization 364 39.558 15.275 9.139 68.346 .074 2.234
ODA 364 6.977 7.228 0.172 40.41 1.752 6.532
Manufacturing value 345 11.273 4.32 3.399 23.651 0.191 2.331
Government Eff. 364 -0.63 0.648 -1.848 1.057 0.461 2.588
Employment services 364 34.87 15.501 6.94 71.94 0.454 2.375
CO2emissions 364 1.067 1.781 0.021 9.979 3.367 15.4
With regards to our second specific question, the estimation of model (1) using the GMM
estimates (Table 11) shows that minimum wage has a negative significant effect on inequality in
SSA. We thus proceed by rejecting the null hypothesis. It is evident that a percentage change in
the level of minimum wage will has a 0.0094% reduction in the level of inequality in this region,
which is significant at 1%. As shown by the test above inequality in SSA is significantly affected
by minimum wage and other factors such as Natural resources, Internet use, FDI and
Urbanization. The only variable which does not have a significant effect on inequality in the
region is GDP per Capita.
Table 11: Baseline results on the effect of minimum wage on income inequality: GMM estimates
Dependent variable : GINI
(1) (2) (3) (4) (5) (6)

Lagged Gini 0.924*** 0.879*** 0.903*** 0.875*** 0.878*** 0.861***
(0.00167) (0.00868) (0.00193) (0.00767) (0.00960) (0.00794)
Minimum
Wage -0.0000466*** -0.0000989*** -0.000170*** -0.0000632*** -0.0000989*** -0.0000941***
(0.000012) (0.0000146) (0.0000318) (0.0000211) (0.0000325) (0.0000209)
GDP per
capita(ln) 0.000110 0.000158 0.000121 0.000629 -0.0000722
(0.000208) (0.000209) (0.000375) (0.000425) (0.000431)
Natural resources 0.0000368** 0.0000333 0.0000541 0.000021

(0.0000146) (0.0000542) (0.00005) (0.0000424)
Internet use -0.0000847*** -0.0000237 -0.000112***
(0.0000266) (0.0000217) (0.0000243)
FDI -0.000279* -0.000383***
(0.000155) (0.000101)
Urbanisation 0.000362***
(0.000118)
Constant 0.0438*** 0.0689*** 0.0546*** 0.0716*** 0.0642*** 0.0703***
(0.00111) (0.00524) (0.00289) (0.00581) (0.00813) (0.00710)
Observations 205 205 205 205 205 205

Number of
countries 27 27 27 27 27 27
Number of
instruments 26 20 21 21 21 23
AR(2) 0.326 0.339 0.353 0.329 0.321 0.312
Hansen OIR 0.758 0.671 0.478 0.638 0.745 0.274
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1. For the Hansen test, the null hypothesis is the absence of
correlation of the instruments with the residuals, i.e. the validity of the instruments. For Arellano and Bond's second-order
autocorrelation test (AR (2)), the null hypothesis is the absence of second-order correlation of the errors of the first difference
equation.
The negative insignificant effect of the minimum wage on inequality in SSA as shown by the
results is consistent with what theories predicted and evident by the numerous literatures. Even
though the minimum wage reduces inequality in this region, the magnitude is too small as seen in
coefficient of this variable. This is consistent with the marginal productivity theory which
predicted that the extents to which the minimum wage reduces inequality largely depend on the
size of the covered sector. It is a Stylized fact that the covered sector of minimum wage is small
in SSA, and therefore the effect is significant but the magnitude is not great.
The results confirms the findings of Card and Krueger (1995) who show how increases in the
federal minimum wage in the United States halt and temporarily reverse the trend of growing
income inequality over the last 30 years. The effects are only temporary, since in years after the
minimum wage increases, inequality continues to rise again. We can also make similar judgments
for some SSA countries, as it can be shown that the minimum wage has only a temporary

significant effect on inequality in such countries. Inequality is still very high in South Africa,
despite the fact that there are yearly variations in the minimum wage. The very high inequality
rate in South Africa can also be justified by the human capital theory, which predicted that
inequality will remain high in countries with high immigration rate of unskilled labour. Thus, the
effect of the minimum wage on inequality disappears in the course of the year. Card and Krueger
(1995) warns that the increase in the minimum wage might have been too small to restore
equality.
Inequality in SSA is also significantly affected by other factors such as Natural resources, Internet
use, FDI and Urbanization. Kuznets (1955) provided the reasons why income inequality may rise
as the countries urbanize. Economic growth would cause economies to move away from
agriculture into industrialization and urbanization. The main reason for this movement is the
widening of income inequality in the urban areas, hence a direct relationship is observed between
urbanization and in equality. Most SSA economies rather de-industrialize since the share of
industry in GDP in most African economies has rather declined compared to that in 1985, Iddisah
et al. (2019) so as to keep inequality stable.
Table 12: Robustness check with additional controls

(1) (2) (3) (4) (5)
Lagged Gini 0.863087*** 0.872238*** 0.873312*** 0.883382*** 0.863442***
(0.012005) (0.012520) (0.014871) (0.016444) (0.017825)
Minimum Wage -0.000104*** -0.000129*** -0.000138*** -0.000126** -0.000087***

(0.000036) (0.000049) (0.000043) (0.000053) (0.000023)
ODA 0.000219
(0.000230)
Manufacturing value -0.000613***
(0.000190)

Gouv Effec. -0.001022

(0.003457)
Employment services -0.000608***
(0.000224)
CO2 emissions 0.001449***
(0.000477)
GDP per capita (ln) -0.000414 -0.000919 -0.000435 -0.002355** 0.000555
(0.000777) (0.000584) (0.001323) (0.001050) (0.000670)
Natural resources -0.000079 -0.000016 -0.000025 -0.000147 0.000132***

(0.000079) (0.000055) (0.000091) (0.000117) (0.000048)
Internet use -0.000121** -0.000044 -0.000089* 0.000029 -0.000055**

(0.000059) (0.000059) (0.000046) (0.000057) (0.000028)
FDI -0.000355** -0.000271 -0.000391** -0.000053 -0.000259

(0.000167) (0.000179) (0.000188) (0.000127) (0.000159)
Urbanisation 0.000414 0.000013 0.000340* 0.000598** -0.000024

(0.000367) (0.000266) (0.000198) (0.000258) (0.000050)
Constant 0.070629*** 0.092087*** 0.066866*** 0.092259*** 0.072191***

(0.014876) (0.007955) (0.007995) (0.012089) (0.009207)
Observations 205 199 205 205 205

Number of countries 27 26 27 27 27
Number of instruments 23 22 22 22 23
AR(2) 0.311 0.347 0.321 0.337 0.313
Hansen OIR 0.349 0.710 0.413 0.756 0.378
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1. For the Hansen test, the null hypothesis is
the absence of correlation of the instruments with the residuals, i.e. the validity of the instruments. For
Arellano and Bond's second-order autocorrelation test (AR (2)), the null hypothesis is the absence of
second-order correlation of the errors of the first difference equation.
With the addition of controls to the model, the effect of the minimum wage on inequality still
remains negative and significant. Hence our baseline decision to reject the null hypothesis is
further reaffirmed even when additional controls are introduced into the model. The extent of the
reducing effect of the minimum wage on inequality in SSA remains low.

Table 13: Robustness check with Atkinson index

Dependent variable: Atkinson
(1) (2) (3) (4) (5) (6)

Lagged
0.924*** 0.879*** 0.903*** 0.875*** 0.878*** 0.861***
Atkinson
(0.00167) (0.00868) (0.00193) (0.00767) (0.00960) (0.00794)
Minimum
-0.0000466*** -0.0000989 *** -0.000170*** -0.0000632*** -0.0000989*** -0.0000941***
Wage
(0.000012) (0.0000146) (0.0000318) (0.0000211) (0.0000325) (0.0000209)
GDP per capita 0.000110 0.000158 0.000121 0.000629 -0.0000722
(0.000208) (0.000209) (0.000375) (0.000425) (0.000431)
(0.0000146) (0.0000542) (0.00005) (0.0000424)
Internet use -0.0000847*** -0.0000237 -0.000112***
(0.0000266) (0.0000217) (0.0000243)
FDI -0.000279* -0.000383***
(0.000155) (0.000101)
(0.000118)
Constant 0.0438*** 0.0689*** 0.0546*** 0.0716*** 0.0642*** 0.0703***
(0.00111) (0.00524) (0.00289) (0.00581) (0.00813) (0.00710)
Observations 205 205 205 205 205 205

Number of
27 27 27 27 27 27
countries
Number of
26 20 21 21 21 23
instruments
AR(2) 0.326 0.339 0.353 0.329 0.321 0.312
Hansen OIR 0.758 0.671 0.478 0.638 0.745 0.274
correlation of the instruments with the residuals, ie the validity of the instruments. For Arellano and Bond's second-order
equation.

The robustness check with the Atkinson index still confirms our baseline results as seen in the
table above. So far, the results remain consistent. The consistency of the GMM estimator depends
on whether lagged values of the explanatory variables are valid instruments in the regression. We

address this issue by considering two specification tests suggested by Arellano and Bond (1991)
and Hansen (1982). The first is a Sargan test of over-identifying restrictions, which tests the
overall validity of the instruments by analyzing the sample analog of the moment conditions used
in the estimation process. Failure to reject the null hypothesis gives support to the model. The
second test examines the hypothesis that the error term is not serially correlated. Table 14:
Robustness check with Palma ratio
Dependent variable Palmaratio
(1) (2) (3) (4) (5) (6)

Lagged
Palmaratio 1.004771*** 0.981538*** 0.994861*** 0.959947*** 0.973375*** 0.991508***
(0.013277) (0.003121) (0.003146) (0.020022) (0.025459) (0.009630)
Minimum
Wage -0.005684*** -0.006539*** -0.007200*** -0.003405*** -0.002996*** -0.004509***
(0.001682) (0.002086) (0.002231) (0.001255) (0.001074) (0.001490)
GDP per
capita (ln) 0.003077 -0.003673 0.011037 0.001842 -0.011798
(0.006396) (0.005641) (0.019301) (0.019556) (0.012911)
Natural
resources 0.001218* -0.002375 0.000889 0.002827
(0.000672) (0.002296) (0.002982) (0.002590)
Internet use -0.005158*** -0.004075** -0.005134**
(0.001767) (0.002056) (0.002289)
FDI -0.006940*** -0.007574**
(0.002420) (0.003408)
Urbanisation -0.001274
(0.002719)
Constant -0.035360 0.079232 0.055065 0.198704 0.188511 0.301772**
(0.087477) (0.081868) (0.075764) (0.252403) (0.256161) (0.150254)
Observations 205 205 205 205 205 205

Number of
countries 27 27 27 27 27 27
Number of
instruments 14 22 23 23 23 24
AR(2) 0.298 0.302 0.299 0.304 0.292 0.307
Hansen OIR 0.514 0.843 0.913 0.876 0.789 0.395

Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1. For the Hansen test, the null hypothesis is the
absence of correlation of the instruments with the residuals, ie the validity of the instruments. For Arellano
and Bond's second-order autocorrelation test (AR (2)), the null hypothesis is the absence of second-order
correlation of the errors of the first difference equation.

We test whether the differenced error term (that is, the residual of the regression in differences) is
second-order serially correlated. correlation of the differenced error term is expected even if the
original error term (in levels) is uncorrelated, Second-order serial correlation of the differenced
residual indicates that the original error term is serially correlated and follows a moving average
process at least of order one. If the test fails to reject the null hypothesis of absence of
secondorder serial correlation, we conclude that the original error term is serially uncorrelated
and use the corresponding moment conditions.
This statistically significant result concurs with the much more extensive literature on the
minimum wage and inequality cited above, as well as with the literature that examines the effect
other controls on inequality in the region.
The results found are similar to those discussed in the previous empirical research. The evidence
found in the previous literature tends to find negative relationships between the minimum wage
and income inequality. DiNardo et al. (1996) saw that falling real values of the minimum wage
explained the expanding wage differentials between the 90h and 10th percentiles. Card and
Krueger (1995) provide evidence for increases to the federal minimum wage reversing the growth
of income inequality with no disemployment effects. Finally, Koeniger et al. (2007) show how
the minimum wage has a highly statistically significant negative relationship with income
inequality when looking at 11 OECD countries. Overall, the findings of this study are fairly
consistent with many recent findings.
Conclusion for part two

We use a large set of panel data at the Cross-Country level that contains relevant information on
the minimum wage, to estimate the distributional effect of minimum wage changes in SSA over
the period 2004-2016. Compared with previous studies using Cross-Country and Country-level
data and reporting mixed results, our study shows that minimum wage changes significantly help
reduce the earnings gap in the earnings distribution. To gauge the contribution of minimum wage

increases to reducing earnings inequality, we used the three appreciate measures of inequality; the
Gini index, Atkinson index and the Palma ratio. After the robustness checks, results remain
consistent. We therefore proceeded by rejecting the null hypothesis and accepting the alternative
hypothesis that the minimum wage has a significant effect on inequality in SSA. Indeed, we find
that minimum wage changes substantially contribute to reducing the earnings gap of the earning
distribution in SSA. Likewise, the results for the Gini, Atkinson and Palma coefficients and
variance in the analysis suggest that the minimum wage helps reduce earnings inequality.
In sum, our findings are consistent with recent studies reporting that minimum wage plays an
essential role in earnings / wage inequality. Both the US and Mexico have exhibited a declining
minimum wage (both real and effective) and rising inequality, and empirical evidence shows that
the declining minimum wage accounts for a substantial part of the growth in inequality in both
countries over the past three decades (Autor et al. 2016; Bosch and Manacorda 2010; Lee 1999)
as earlier discussed in the literature review. In contrast, SSA has experienced an increase in the
minimum wage and an increasing trend in inequality in the past years, which provides an
opportunity to study the effect of the minimum wage on inequality in an environment that differs
from that in prior research (eg US and Mexico). Our finding that minimum wage increases have
reduced inequality has both regional relevance and general implications in the context of the
minimum wage literature.

GENERAL CONCLUSION

Inspired by the need to put into empirical evidence the effect of the minimum wage on poverty
and inequality in SSA, this work has the following key statements as it's general conclusion. This
work is designed into two parts, and therefore, equally has two research questions, two objectives
and two research hypotheses. The study results were however not similar in the two different
parts. On the one hand, this study found no significant impact of the minimum wage on poverty
in SSA. On the other hand, it found a negative significant effect of the minimum wage on
inequality in SSA.
For the first part, the major conclusion for the literature review is that; there is no clear
theoretical predictions of the effect of the minimum wage on poverty, as the overall effect
depends on the value of several elasticities that are, themselves, difficult to predict. Most
empirical literatures of the impact of minimum wages on poverty in developing countries
conclude that increases in minimum wages reduce poverty, on balance, though they find only a
modest impact for two reasons. First, a large share of workers is not covered by minimum wage
legislation. And second, higher minimum wages do not affect all low-income households the
same way: minimum wages pull some households out of poverty, but may push others into
poverty. Given the potential for negative impacts on the employment status and incomes of some
of the poorest families, raising minimum wages is an inefficient tool for reducing poverty. In
particular, and in the context of this study, the minimum wage has no significant effect on
poverty in SSA. It is for this reason that we suggest in the recommendations that effective poverty
reduction policies should use the minimum wage together with other poverty reduction measures
such as social security.
For the second part, most of literatures on the effect of the minimum wage on inequality
portrayed some degree of negativity significant results. As reviewed by this study, although the
minimum wage may not be large enough to lift people out of poverty, it has a significant
redistribution effect, and thus reducing inequality. Compared with previous studies using
CrossCountry and Country-level data and reporting mixed results, our study shows that minimum
wage changes significantly help reduce the earnings gap in the earnings distribution in SSA
RECOMMENDATIONS
There are some indications that SSA decision makers and their advisers are taking poverty and
inequality more seriously than ever. One positive initiative that has flowed from this are the large

number of conditional and unconditional cash transfers that some African states and international
donors have started to finance as part of a program of enhanced social assistance. This study adds
to the above mentioned initiatives, the following recommendations:
To the policy makers in SSA
o Enhancing compliance with minimum wage laws; o General and inclusive

income redistribution; o Improving incomes in the informal sector where
minimum wages do not apply; o Increasing the long-term productivity of workers
from low-income families; o Foster effective democratic practice; o Intensify the
education of the minority such as women and children; o Intensify non-
contributory cash transfers; o Raise smallholder staple crop productivity and rural
development.
This suggests that while minimum wages can be part of a package of poverty-reducing policies,
they should not be the only mechanism or even the most important one. For example, in
Cameroon, the un-contributed cash transfer programs such as 'the safety net project, have
contributed to improve the living conditions of poor and vulnerable populations, while also
improving behaviors related to the health, nutrition and education of beneficiaries. Conditional
cash transfers to low-income households have the additional benefit of providing part of a social
safety net for households when workers lose their jobs because of higher minimum wages.
LIMITATION OF THE STUDY

No work of the mind is perfect; therefore, this work is limited in time and space. We have chosen
to work only for the period 2004-2016 on the SSA Countries. In addition, we used only one
dimension of the minimum wage, the real minimum wage. A certain number of data are not
available for the study periods that we have targeted, because they were not recorded in the

official registers by the competent services of the countries concerned. The exponential
smoothing and arithmetic means methods that we used to complete these missing data are only an
approximation of reality. Again, the minimum wage figures for many countries are invariant in
time; this placed a big limitation to the sample size.

SUGGESTIONS FOR FURTHER STUDY

This work necessitates other future studies either to broaden or deepen this work. We therefore,
suggest further on SSA and beyond on themes such as: The minimum wage effect on wages in
SSA. The question of the minimum wage effect on poverty in SSA is effective only if the
minimum wage can increase the average wage. The first step in monitoring the effects of a
minimum wage is therefore, to verify that it really does increase wages. If it does not, then the
minimum wage is not an effective wage floor. If it does, then the minimum wage will normally
increases average wages and reduce wage inequality compared to a situation where it is absent.
By pushing up the wages of low-paid workers, the minimum wage also contributes to raising the
relative wages of more vulnerable or disadvantaged workers, such as those who are young, less
educated, or migrant workers.
Secondly, future research should focus on the theme: The joint effect of the minimum wage and
collective bargaining on poverty and inequality in SSA. The effects of minimum wages, and their
magnitude, depends on other labour market policies, i.e. how they interact with other policies and
labor market institutions. One such interactions is between minimum wages and collective
bargaining. Indeed, the effects of minimum wages are different in countries with a strong
tradition of collective bargaining than in countries where wages are set unilaterally by enterprises
in negotiation with individuals.
Thirdly research should extend the study of the minimum wage to the large informal sector and
not only to small formal sector, in most SSA countries, minimum wage laws in principle do apply
to small or unregistered enterprises or non-declared jobs. Almost by definition, however,
enforcement of legal or regulatory frameworks is much more of a challenge when wage
employment is not registered or takes place in un-registered enterprises. Taking this reality of
developing countries into account, economists have long hypothesized that instead of causing
lower employment, minimum wages that are too high and effectively enforced may cause
employees to be displaced or shifted from the formal to the informal economy thereby leading to
higher rates of non-compliance and downward pressure on wages in the informal economy
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APPENDIX 1: ABREVATIONS
BLUE Best Linear Unbiased Estimator
CO2 Carbon dioxide
ECA Economic Commission for Africa.
FDI Foreign Direct Investment

GC Government Consumption
GDP Gross Domestic Product
GICP Global Consumption and Income Project
GMM Generalized method of moment
ICT Information and Communication Technology
ILO International Labour Organization
IV Instrumental Variable
LIC Low Income Countries
MIC Middle Income Countries
MW Minimum Wage
ODA Official Development Aid
OECD Organization for Economic Co-operation and Development
OLS Ordinary Least Square
PHI Poverty Headcount Index
PPP Purchasing Power Parity
PSP Poverty and Shared Prosperity
SSA Sub-Saharan Africa
UN United Nations
UNSD United Nations Statistics Division
WDI World Development Index

APPENDIX
APPENDIX 1: Share of population below $1.90 a day (2011 ppp%)
Region 1990 1999 2011 2012 2015
East Asia and Pacific 60.6 37.5 8.5 7.2 14.1
Europe and Central Asia 1.9 7.8 2.4 2.1 1.7
Latin America/Caribbean 17.8 13.9 5.9 5.6 5.6
Middle East/North Africa _ __ _ _ _
South Asia 50.6 41.8 22.2 18.8 13.5
Sub-Saharan Africa 56.8 58.0 44.4 37.7 29.2
Developing World 44.4 34.3 16.5 14.9 11.9
World 37.1 29.1 14.1 12 7 9.6
APPENDIX 2: Descriptive Statistics and the normality13 test

Variable Obs Mean Std. Min Max Skewnes Kurtosis
Dev. s
Poverty 64 38.592 26.266 .2 94.3 .047 1.811
Headcount Index
Poverty gap 64 15.864 13.712 0 64.1 .868 3.626
Minimum Wage 252 2.569 9.343 -24.353 45.022 .703 5.419
GDP per capita 364 2119. 2221.592 215.15 9833.613 1.527 4.351
81 5
ICT 364 11.131 13.477 .155 58.271 1.71 5.201

Foreign aid 364 6.977 7.228 .172 40.41 1.752 6.532
External debt 338 38.617 28.051 3.895 215.77 2.01 9.054
Remittances 348 3.178 5.639 0 41.499 4.066 22.296
Population 364 2.269 .929 -.617 3.711 -.845 2.897
Government 348 15.086 6.428 2.047 41.888 1.439 6.783
consumption
Investment 355 23.187 10.514 0 77.89 1.08 6.587
13 Acceptable values of skewness fall between − 3 and + 3, and kurtosis is appropriate from a range of − 10 to + 10 when utilizing
SEM (Brown, 2006). The skewness for a normal distribution is zero, and any symmetric data should have a skewness near zero.
Negative values for the skewness indicate data that are skewed left and positive values for the skewness indicate data that are
skewed right. A distribution that is less peaked and has thinner tails than normal distribution has kurtosis value between 1 and 3.

3: Robustness check with Palma ratio

(1) (2) (3) (4) (5) (6)

Lagged
Palmaratio 1.004771*** 0.981538*** 0.994861*** 0.959947*** 0.973375*** 0.991508***
(0.013277) (0.003121) (0.003146) (0.020022) (0.025459) (0.009630)
Minimum - - - - - -
Wage 0.005684*** 0.006539*** 0.007200*** 0.003405*** 0.002996*** 0.004509***
(0.001682) (0.002086) (0.002231) (0.001255) (0.001074) (0.001490)
GDP per
capita (ln) 0.003077 -0.003673 0.011037 0.001842 -0.011798
(0.006396) (0.005641) (0.019301) (0.019556) (0.012911)
Natural
resources 0.001218* -0.002375 0.000889 0.002827
(0.000672) (0.002296) (0.002982) (0.002590)
-
Internet use
0.005158*** -0.004075** -0.005134**
(0.001767) (0.002056) (0.002289)
-
FDI
0.006940*** -0.007574**
(0.002420) (0.003408)
(0.002719)
Constant -0.035360 0.079232 0.055065 0.198704 0.188511 0.301772**
(0.087477) (0.081868) (0.075764) (0.252403) (0.256161) (0.150254)
Observations 205 205 205 205 205 205
Number of
countries 27 27 27 27 27 27
Number of
instruments 14 22 23 23 23 24
AR(2) 0.298 0.302 0.299 0.304 0.292 0.307
Hansen OIR 0.514 0.843 0.913 0.876 0.789 0.395
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1. For the Hansen test, the null
hypothesis is the absence of correlation of the instruments with the residuals, ie the validity of the
instruments. For Arellano and Bond's second-order autocorrelation test (AR (2)), the null hypothesis
is the absence of second-order correlation of the errors of the first difference equation.

APPENDIX

APPENDIX
4: Baseline results of the effect of minimum wage on poverty: OLS estimates

VARIABLES (1) (2) (3) (4) (5)
Minimum Wage -0.440 -0.396 -0.284 -0.0431 0.0337

(0.446) (0.339) (0.323) (0.232) (0.220)
GDP per capita -0.00655*** -0.00433*** -0.00237** -0.00173
(0.00101) (0.000889) (0.00108) (0.00121)
ICT -0.734*** -0.413** -0.374**
(0.165) (0.156) (0.157)
Aid 1.991*** 2.497***
(0.596) (0.482)
Debt -0.202*
(0.117)
Constant 33.78*** 49.91*** 54.76*** 31.94*** 33.89***
(3.842) (3.861) (4.135) (7.367) (7.224)
R-squared 0.026 0.411 0.542 0.687 0.687
APPENDIX 5: The effect of minimum wage on poverty: Fixed effect and random effect estimates
Fixed effect Random Effect

VARIABLES
(4)
(5) (6)
(1) (2) (3)
Minimum Wage -0.147 -0.124 -0.109 -0.151 -0.125 -0.0748

(0.113) (0.109) (0.103) (0.110) (0.105) (0.107)
GDP per capita -0.004** -0.00828 -0.0059*** -0.0055***
(0.0025) (0.0057) (0.00144) (0.00198)
ICT 0.0202 -0.0418

APPENDIX
(0.106) (0.0739)
Aid 0.579 0.900***
(0.338) (0.312)
Debt 0.0605 0.0459
(0.0456) (0.0472)
Constant 33.00*** 43.58*** 46.26*** 36.25*** 49.97*** 40.54***

(0.757) (6.290) (12.34) (5.356) (5.289) (6.178)
Observations 45 45 42 45 45 42
R-squared 0.071 0.183 0.505
Number of id 22 22 20 22 22 20
6: Robustness check with IV estimates

VARIABLES
(1) (2) (3) (4) (5)
Minimum Wage 4.050 1.555 0.290 0.300 0.113

(3.159) (1.363) (0.740) (0.588) (0.700)
GDP per capita -0.00746*** -0.00448*** -0.00153 -0.00133
(0.00144) (0.000881) (0.00107) (0.00130)
ICT -0.824*** -0.440*** -0.472***
(0.186) (0.154) (0.152)
Aid 2.917*** 2.700***
(0.789) (0.938)
Debt 0.0327
(0.0961)
Constant 25.71*** 49.62*** 58.16*** 27.32*** 28.25***

(9.500) (7.094) (5.461) (8.428) (8.728)
R-squared 0.877 0.084 0.579 0.785 0.766
Hansen 0.241 0.746 0.424 0.183 0.119

APPENDIX 6: Robustness check with Alternative measure of poverty using the IV estimates
Dependent variable: Poverty Gap
VARIABLES
(1) (2) (3) (4) (5)
Minimum Wage 2.186 0.954 0.345 0.372 0.310

(1.639) (0.754) (0.440) (0.357) (0.426)
GDP per capita -0.00342*** -0.00196*** -0.000268 -0.000326
(0.000793) (0.000460) (0.000510) (0.000615)
ICT -0.406*** -0.189** -0.200***
(0.111) (0.0771) (0.0729)
Aid 1.669*** 1.580***
(0.462) (0.564)
Debt 0.0291
(0.0563)
Constant 9.486** 20.57*** 24.78*** 7.156 7.159
(4.783) (3.928) (3.250) (4.522) (4.725)
R-squared 0.396 0.342 0.432 0.720 0.707
Hansen 0.355 0.668 0.496 0.315 0.158
APPENDIX 7: Robustness check with additional control using the IV estimates
Dependent variable : Poverty HeadcountIndex

VARIABLES (1) (2) (3) (4)
Minimum Wage 0.711 0.0592 0.188 0.358

(0.652) (0.518) (0.646) (0.659)
GDP per capita -0.00405** 0.00168 -0.000234 -0.00112

(0.00162) (0.00127) (0.00178) (0.00135)
ICT -0.0193 -0.373*** -0.466*** -0.459***

(0.245) (0.137) (0.147) (0.147)

APPENDIX
Aid 2.366*** 2.427*** 2.950*** 2.984***
(0.874) (0.733) (1.001) (0.864)
Debt -0.101 0.234** 0.110 0.00481

(0.104) (0.105) (0.0999) (0.0842)
Remittances -5.736***
(1.742)
Population 16.79***
(5.123)
Government consumption -0.613
(0.508)
Investment 0.145
(0.280)
Constant 45.57*** -23.94 29.97*** 22.93***
(9.534) (16.19) (8.146) (8.863)
Observations 28 29 29 29
R-squared 0.854 0.836 0.772 0.766
Hansen 0.0671 0.568 0.269 0.0986
8: Descriptive statistics
Variables Obs Mean Std. Dev. Min Max Skew. Kurt.
Gini 324 0.585 0.041 0.488 0.852 1.876 12.878
Atkinson2 324 0.7 0.07 0.49 0.835 -0.089 2.975
Palmaratio 324 6.4 1.758 2.28 14.435 1.156 5.267
Minimum Wage 252 2.569 9.343 -24.353 45.022 0.703 5.419
GDP per capita (ln) 364 11.201 2.254 6.652 15.35 -0.098 1.991
Natural resources 364 11.365 10.695 0.001 58.65 2.031 7.68
Internet use 364 11.131 13.477 0.155 58.271 1.71 5.201
FDI 364 3.622 5.135 -5.208 39.456 3.481 19.638

Urbanization 364 39.558 15.275 9.139 68.346 .074 2.234

ODA 364 6.977 7.228 0.172 40.41 1.752 6.532
Manufacturing value 345 11.273 4.32 3.399 23.651 0.191 2.331
Government Eff. 364 -0.63 0.648 -1.848 1.057 0.461 2.588
Employment services 364 34.87 15.501 6.94 71.94 0.454 2.375
CO2emissions 364 1.067 1.781 0.021 9.979 3.367 15.4
APPENDIX 9: Baseline results on the effect of minimum wage on income inequality: GMM estimates
(1) (2) (3) (4) (5) (6)

Lagged Gini 0.924*** 0.879*** 0.903*** 0.875*** 0.878*** 0.861***
(0.00167) (0.00868) (0.00193) (0.00767) (0.00960) (0.00794)
Minimum
Wage -0.0000466*** -0.0000989*** -0.000170*** -0.0000632*** -0.0000989*** -0.0000941***
(0.000012) (0.0000146) (0.0000318) (0.0000211) (0.0000325) (0.0000209)
GDP per 0.000110 0.000158 0.000121 0.000629 -0.0000722

APPENDIX
capita(ln)
(0.000208) (0.000209) (0.000375) (0.000425) (0.000431)
(0.0000146) (0.0000542) (0.00005) (0.0000424)
Internet use -0.0000847*** -0.0000237 -0.000112***
(0.0000266) (0.0000217) (0.0000243)
FDI -0.000279* -0.000383***
(0.000155) (0.000101)
(0.000118)
Constant 0.0438*** 0.0689*** 0.0546*** 0.0716*** 0.0642*** 0.0703***
(0.00111) (0.00524) (0.00289) (0.00581) (0.00813) (0.00710)
Observations 205 205 205 205 205 205

Number of
countries 27 27 27 27 27 27
Number of
instruments 26 20 21 21 21 23
AR(2) 0.326 0.339 0.353 0.329 0.321 0.312
Hansen OIR 0.758 0.671 0.478 0.638 0.745 0.274

APPENDIX 1
0: Robustness check with additional controls
(1) (2) (3) (4) (5)
Lagged Gini 0.863087*** 0.872238*** 0.873312*** 0.883382*** 0.863442***
(0.012005) (0.012520) (0.014871) (0.016444) (0.017825)
- - -
Minimum Wage 0.000104*** 0.000129*** 0.000138*** -0.000126** -0.000087***
(0.000036) (0.000049) (0.000043) (0.000053) (0.000023)
ODA 0.000219
(0.000230)
-
Manufacturing value 0.000613***
(0.000190)
Gouv Effec. -0.001022
(0.003457)
Employment services -0.000608***
(0.000224)
CO2 emissions 0.001449***
(0.000477)
GDP per capita (ln) -0.000414 -0.000919 -0.000435 -0.002355** 0.000555
(0.000777) (0.000584) (0.001323) (0.001050) (0.000670)
Natural resources -0.000079 -0.000016 -0.000025 -0.000147 0.000132***
(0.000079) (0.000055) (0.000091) (0.000117) (0.000048)
Internet use -0.000121** -0.000044 -0.000089* 0.000029 -0.000055**
(0.000059) (0.000059) (0.000046) (0.000057) (0.000028)
FDI -0.000355** -0.000271 -0.000391** -0.000053 -0.000259
(0.000167) (0.000179) (0.000188) (0.000127) (0.000159)
Urbanisation 0.000414 0.000013 0.000340* 0.000598** -0.000024
(0.000367) (0.000266) (0.000198) (0.000258) (0.000050)
Constant 0.070629*** 0.092087*** 0.066866*** 0.092259*** 0.072191***
(0.014876) (0.007955) (0.007995) (0.012089) (0.009207)
Observations 205 199 205 205 205
Number of countries 27 26 27 27 27
Number of
instruments 23 22 22 22 23
AR(2) 0.311 0.347 0.321 0.337 0.313
Hansen OIR 0.349 0.710 0.413 0.756 0.378

APPENDIX 1
1: Robustness check with Atkinson index

Dependent variable: Atkinson
(1) (2) (3) (4) (5) (6)

Lagged
0.924*** 0.879*** 0.903*** 0.875*** 0.878*** 0.861***
Atkinson
(0.00167) (0.00868) (0.00193) (0.00767) (0.00960) (0.00794)
Minimum
-0.0000466*** -0.0000989 *** -0.000170*** -0.0000632*** -0.0000989*** -0.0000941***
Wage
(0.000012) (0.0000146) (0.0000318) (0.0000211) (0.0000325) (0.0000209)
GDP per capita 0.000110 0.000158 0.000121 0.000629 -0.0000722
(0.000208) (0.000209) (0.000375) (0.000425) (0.000431)
(0.0000146) (0.0000542) (0.00005) (0.0000424)
Internet use -0.0000847*** -0.0000237 -0.000112***
(0.0000266) (0.0000217) (0.0000243)
FDI -0.000279* -0.000383***
(0.000155) (0.000101)
(0.000118)
Constant 0.0438*** 0.0689*** 0.0546*** 0.0716*** 0.0642*** 0.0703***
(0.00111) (0.00524) (0.00289) (0.00581) (0.00813) (0.00710)
Observations 205 205 205 205 205 205

Number of
27 27 27 27 27 27
countries
Number of
26 20 21 21 21 23
instruments

APPENDIX 1
AR(2) 0.326 0.339 0.353 0.329 0.321 0.312
Hansen OIR 0.758 0.671 0.478 0.638 0.745 0.274
correlation of the instruments with the residuals, i.e. the validity of the instruments. For Arellano and Bond's second-order
equation.

Dependent variable Palma ratio
(1) (2) (3) (4) (5) (6)

Lagged
Palmaratio 1.004771*** 0.981538*** 0.994861*** 0.959947*** 0.973375*** 0.991508***
(0.013277) (0.003121) (0.003146) (0.020022) (0.025459) (0.009630)
Minimum - - - - - -
Wage 0.005684*** 0.006539*** 0.007200*** 0.003405*** 0.002996*** 0.004509***
(0.001682) (0.002086) (0.002231) (0.001255) (0.001074) (0.001490)
GDP per
capita (ln) 0.003077 -0.003673 0.011037 0.001842 -0.011798
(0.006396) (0.005641) (0.019301) (0.019556) (0.012911)
Natural
resources 0.001218* -0.002375 0.000889 0.002827
(0.000672) (0.002296) (0.002982) (0.002590)
-
Internet use
0.005158*** -0.004075** -0.005134**
(0.001767) (0.002056) (0.002289)
-
FDI
0.006940*** -0.007574**
(0.002420) (0.003408)
(0.002719)
Constant -0.035360 0.079232 0.055065 0.198704 0.188511 0.301772**

APPENDIX 1
(0.087477) (0.081868) (0.075764) (0.252403) (0.256161) (0.150254)
Observations 205 205 205 205 205 205
Number of
countries 27 27 27 27 27 27
Number of
instruments 14 22 23 23 23 24
AR(2) 0.298 0.302 0.299 0.304 0.292 0.307
Hansen OIR 0.514 0.843 0.913 0.876 0.789 0.395
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1. For the Hansen test, the null
hypothesis is the absence of correlation of the instruments with the residuals, i.e. the validity of the
instruments. For Arellano and Bond's second-order autocorrelation test (AR (2)), the null
hypothesis is the absence of second-order correlation of the errors of the first difference equation.

(1) (2) (3) (4) (5) (6)

Lagged
Palmaratio 1.004771*** 0.981538*** 0.994861*** 0.959947*** 0.973375*** 0.991508***
(0.013277) (0.003121) (0.003146) (0.020022) (0.025459) (0.009630)
Minimum
Wage -0.005684*** -0.006539*** -0.007200*** -0.003405*** -0.002996*** -0.004509***
(0.001682) (0.002086) (0.002231) (0.001255) (0.001074) (0.001490)
GDP per
capita (ln) 0.003077 -0.003673 0.011037 0.001842 -0.011798
(0.006396) (0.005641) (0.019301) (0.019556) (0.012911)
Natural
resources 0.001218* -0.002375 0.000889 0.002827
(0.000672) (0.002296) (0.002982) (0.002590)
Internet use -0.005158*** -0.004075** -0.005134**
(0.001767) (0.002056) (0.002289)

APPENDIX 1
FDI -0.006940*** -0.007574**
(0.002420) (0.003408)
(0.002719)
Constant -0.035360 0.079232 0.055065 0.198704 0.188511 0.301772**
(0.087477) (0.081868) (0.075764) (0.252403) (0.256161) (0.150254)
Observations 205 205 205 205 205 205

Number of
countries 27 27 27 27 27 27
Number of
instruments 14 22 23 23 23 24
AR(2) 0.298 0.302 0.299 0.304 0.292 0.307
Hansen OIR 0.514 0.843 0.913 0.876 0.789 0.395
Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1. For the Hansen test, the null hypothesis is the
absence of correlation of the instruments with the residuals, i.e. the validity of the instruments. For Arellano
and Bond's second-order autocorrelation test (AR (2)), the null hypothesis is the absence of second-order
correlation of the errors of the first difference equation.

APPENDIX 1 4 : Matrix of correlations

(2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14)
Variables (1)
(1) Gini 1.000
(2) Atkinson 0.789 1.000
(3) Palma ratio 0.923 0.924 1.000
(4) SMIIG 0.053 0.038 0.033 1.000
(5) GDP per cap. (ln) 0.053 -0.012 -0.014 -0.183 1.000
(6) Natural resources -0.068 -0.067 -0.094 0.068 0.162 1.000
(7) Internet use -0.078 -0.192 -0.122 -0.005 -0.310 -0.351 1.000
(8) FDI 0.081 0.116 0.060 0.119 0.083 0.329 -0.209 1.000
(9) Urbanization 0.205 0.104 0.188 -0.009 -0.260 0.024 0.486 -0.076 1.000
(10) CO2 emissions 0.520 0.228 0.465 -0.016 -0.195 -0.259 0.461 -0.204 0.533 1.000
(11) Employment services 0.226 0.074 0.238 -0.060 -0.147 -0.323 0.574 -0.246 0.719 0.785 1.000
(12) Government Eff. 0.255 0.123 0.241 0.059 -0.262 -0.570 0.482 -0.125 0.403 0.608 0.701 1.000
(13) Manufacturing value -0.015 0.080 0.011 -0.085 -0.133 -0.327 0.287 -0.287 0.100 0.217 0.157 0.109 1.000
(14) ODA -0.036 0.034 -0.044 0.051 0.166 0.351 -0.494 0.207 -0.566 -0.462 -0.738 -0.500 -0.155 1.000
Table of contents
CERTIFICATE OF ORIGINALITY ...........................................................................................................
i
CONTENTS ........................................................................................................................................
ii
DEDICATION .....................................................................................................................................
v
ACKNOWLEDGMENTS .....................................................................................................................
vi
ABREVATIONS .................................................................................................................................
vii
List of tables ..................................................................................................................................
viii
List of figures ...................................................................................................................................
ix
ABSTRACT .........................................................................................................................................
x
RÉSUME ...........................................................................................................................................
xi
GENERAL INTRODUCTION...............................................................................................................1
I. Background of the study...........................................................................................................2
II. Statement of the problem.......................................................................................................5
III. Research question..................................................................................................................7
IV. Research objective.................................................................................................................7
V. Hypothesis of the study...........................................................................................................7
VI. Importance of the study.........................................................................................................8
VII. Methodology.........................................................................................................................8
VIII. Organization of the work......................................................................................................8
PART ONE......................................................................................................................................10
THE EFFECTS OF THE MINIMUM WAGE ON POVERTY IN SSA......................................................10
Introduction to part one............................................................................................................11
CHAPTER ONE................................................................................................................................12

LITERATURE REVIEW ON THE EFFECTS OF MINIMUM WAGE ON POVERTY IN SSA.....................12

Introduction to chapter one......................................................................................................12
1.1 Theoretical literature review...............................................................................................12
1.2 Empirical literature review on the effect of minimum wage on poverty............................14
Conclusion for chapter one.......................................................................................................18
CHAPTER TWO...............................................................................................................................19
EMPIRICAL EVIDENCE ON THE EFFECT OF MINIMUM WAGE ON POVERTY IN SSA......................19
Introduction...............................................................................................................................19
SECTION 1: The stylized facts on minimum wage and poverty in SSA......................................19
2.1. SSA have been the poorest region in the World since 1999..............................................19
2.3 Stylized facts on the Determinants of Poverty in SSA.........................................................21
2.4 Evolution of minimum wage in SSA.....................................................................................22
SECTION 2: Methodological strategy and discussion of results................................................23
Introduction...............................................................................................................................23
2.5. Sample size and reason for choosing the sample..............................................................23
2.6 Variables of the study..........................................................................................................23
2.7.1 Model estimation technique..........................................................................................27
2.8 Presentation results, interpretation and discussion...........................................................31
PART TWO.....................................................................................................................................39
THE EFFECT OF MINIMUM WAGE ON INEQUALITLY IN SSA.........................................................39
Introduction to part two............................................................................................................40
CHAPTER THREE............................................................................................................................41
LITERATURE REVIEW ON THE EFFECT OF THE MINIMUM WAGE ON INEQUALITY IN SSA...........41
Introduction for chapter three..................................................................................................41
3.1 Theoretical literature review...............................................................................................41
3.2 Empirical literature Review.................................................................................................45
CHAPTER FOUR..............................................................................................................................52
THE EFFECT OF MINIMUM WAGE ON INEQUALITY IN SSA: EMPIRICAL EVIDENCE......................52
Introduction to chapter four.....................................................................................................52

SECTION ONE: STALIZED FACTS ON INEQUALITY IN SSA...........................................................52

4.1. The evolution of inequality in SSA......................................................................................52
4.2 Stylized facts on the determinants of inequality in SSA......................................................53
SECTION TWO: METHODOLOGICAL STRATEGY AND DISCUSSION OF RESULTS........................57
4.4 Data source and sample size...............................................................................................57
Conclusion for part two.............................................................................................................70
GENERAL CONCLUSION.................................................................................................................71
RECOMMENDATIONS....................................................................................................................73
LIMITATION OF THE STUDY...........................................................................................................74
SUGGESTIONS FOR FURTHER STUDY............................................................................................75
REFERENCES..................................................................................................................................76
APPENDIX 1: ABREVATIONS..........................................................................................................85
Table of contents...........................................................................................................................98

Bunkweh Bertus Master Thesis: The Effect of Minimum Wage On Poverty and Inequality in Sub-Saharan Africa

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Bunkweh Bertus Master Thesis: The Effect of Minimum Wage On Poverty and Inequality in Sub-Saharan Africa

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THE EFFECT OF MINIMUM WAGE ON POVERTY AND INEQUALITY IN SUB-SAHARAN AFRICA

Key words: Minimum wage, Poverty and Inequality.

Masters thesis in economics

Mots clés : Salaire minimum, Pauvreté et Inégalité.

Masters thesis in economics

Masters thesis in economics

Masters thesis in economics 1

I. Background of the study

Masters thesis in economics 2

Masters thesis in economics 3

Masters thesis in economics 4

II. Statement of the problem

Masters thesis in economics 5

Masters thesis in economics 6

III. Research question

From this central question, we derived the specific questions as follows:

• How does a change in minimum wage affect poverty in SSA countries?

IV. Research objective

 To establish the effects of minimum wage on poverty in SSA countries.

V. Hypothesis of the study

Masters thesis in economics 7

VI. Importance of the study

VIII. Organization of the work

Masters thesis in economics 8

Masters thesis in economics 9

THE EFFECTS OF THE MINIMUM WAGE ON POVERTY IN SSA

Masters thesis in economics 10

LITERATURE REVIEW ON THE EFFECTS OF MINIMUM WAGE ON POVERTY IN SSA

Introduction to chapter one

Masters thesis in economics 11

1.1 Theoretical literature review

Masters thesis in economics 12

Masters thesis in economics 13

1.2 Empirical literature review on the effect of minimum wage on poverty

Masters thesis in economics 14

Masters thesis in economics 15

Masters thesis in economics 16

Masters thesis in economics 17

Conclusion for chapter one

EMPIRICAL EVIDENCE ON THE EFFECT OF MINIMUM WAGE ON POVERTY IN SSA

SECTION 1: The stylized facts on minimum wage and poverty in SSA

Masters thesis in economics 18

Region 1990 1999 2011 2012 2015

2.2 The evolution of poverty in some SSA Counties

Masters thesis in economics 19

Figure 1: Share of population below the $1.90 a day (2011 ppp%)

Poverty Headcount ratio

2.3 Stylized facts on the Determinants of Poverty in SSA

Masters thesis in economics 20

2.4 Evolution of minimum wage in SSA

Masters thesis in economics 21

Evolution of the minimum wage

SECTION 2: Methodological strategy and discussion of results

2.5. Sample5 size and reason for choosing the sample

Masters thesis in economics 22

2.6 Variables of the study

Masters thesis in economics 23

inequality. Hence, redistribution is necessary in order for economic growth to have

Information and communication technology (ICT): This variable is measured by internet

Masters thesis in economics 24

Public investment (investment)

Table 2: Variables, description and sources

Masters thesis in economics 25

GDP per capita -0.00655* -0.00433* -0.00237** -0.00173

ICT -0.734* -0.413 -0.374**

Aid 1.991* 2.497*

GDP per capita -0.004 -0.00828 -0.0059* -0.0055***

Constant 33.00* 43.58* 46.26* 36.25* 49.97* 40.54*

ICT -0.824* -0.440* -0.472***

Aid 2.917* 2.700*

GDP per capita -0.00342* -0.00196* -0.000268 -0.000326

ICT -0.406* -0.189 -0.200***

Aid 1.669* 1.580*

ICT -0.0193 -0.373* -0.466* -0.459***

Aid 2.366* 2.427* 2.950* 2.984*