Minimum wage coverage and compliance in developing countries

Abstract

Using household and labour force survey data from 11 developing countries, the authors calculate rates of minimum wage compliance for formal/ informal employees covered by current legislation and assess the average "depth" of violations. Though compliance is negatively related to the ratio of minimum to median wages, countries with a national minimum wage set at a meaningful level typically achieve higher compliance rates than countries with occupational or industry-specific minimum wage systems. However, better compliance -especially for women, ethnic groups, and unskilled and informal workers -also depends on contextualized yet comprehensive minimum wage policies combining union/employer involvement, awareness-raising and credible enforcement.

Minimum Wages in Sub-Saharan Africa: A Primer

“…Simply put, the levels of noncompliance with minimum wage laws are high. This has been shown in several studies (Bhorat et al, 2012, Rani et al, 2013Almeida and Ronconi, 2012) and is supported by the evidence presented in this paper. While it could be argued that high levels of non-compliance make wage regulation irrelevant, the reasons for high levels of non-compliance are not yet adequately understood.…”

“…The ratios are significantly higher, with the average figures above 1 and the black dotted line makes this clear. Again comparing these estimates against the sample of non-SSA countries from Rani et al (2013), where the average ratio is 0.76, shows that indeed the figures are high. Overall then, the Kaitz estimates for the SSA region highlight two main aspects of minimum wages: Firstly, the country-specific nature of minimum wage frameworks, mean that the level at which wages are set, and the relation of this level to average wages for that covered group is relevant.…”

“…We apply an Index of Violation 16 from Bhorat, Kanbur and Mayet (2012) to calculate the level and depth of non-compliance, which provides a more comprehensive picture. To do this we combine the Lower and Upper Floor categories presented above where applicable, and we compare the resulting estimates with those of Rani et al (2013). The Index of Violation allows us to calculate the level of non-compliance, or V 0 , which is simply the percentage of workers who earn below the minimum wage that applies to them.…”

“…Ultimately though, this relationship can be tested, through examining the correlation between our violation indices, V 0 and V 1, , and the Kaitz index. Source: Authors' calculations, and Rani et al (2013) Figure 12 above, makes it plain that for the sample of African and developing countries, V 0 and the Kaitz index are positively correlated: Higher levels of a minimum wage relative to the country mean will indeed be associated with higher levels of non-compliance. When the sample is confined to African countries only -too small here to be visually striking -the correlation coefficient is equally compelling at 0.77.…”

Labor Exclusion and the Erosion of Citizenship Responsibilities

“…Several studies attempt to measure the extent and depth of noncompliance with a number of legally mandated requirements such as minimum wages, maximum working hours, occupational health and safety, and social security coverage. Research shows that noncompliance with labor regulations is pervasive, particularly in less developed countries (Bhorat et al, 2012;Kanbur et al, 2013;Rani et al 2013;Ronconi, 2010). 2 There is, however, debate about the welfare implications of this fact.…”