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Wage policy and the distribution of income Patrick Belser Senior Economist, Wage Specialist ILO Geneva Belser@ilo.org 1 The objective of wage policies from the point of view of the International Labour Organisation “to ensure a just share of the fruits of progress to all and a minimum living wage to all employed and in... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769226747.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/10-2.pdf |
ILO Declaration of Philadelphia, 1944, and ILO Declaration on Social Justice for a Fair Globalization, 2008 2 To achieve greater equality, SDG 10.4 calls for “fiscal, wage and social protection policies” Household income sources in South Africa 100 90 80 70 60 50 40 30 20 10 0 Bottom 10% Lower Lower Middle Upper middle... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769226747.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/10-2.pdf |
There are different types of wage policies Minimum wages Collective bargaining Wage statistics Equal pay policies Public sector pay 4 In recent years many countries have established or strengthened minimum wages • Concerns about the negative effects of high inequality and the lack of inclusive economic growth • Recent ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769226747.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/10-2.pdf |
France, the U.S., the Russian Federation, Brazil) • Other countries have more complex systems, which may vary by sector and occupation (e.g. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769226747.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/10-2.pdf |
India or Costa Rica) • Both approaches have their merits, but systems that are too complex lose their effectiveness 7 Exclusions should be kept to a minimum (…) particularly in relation to vulnerable categories of workers Examples: • Domestic workers • Workers in agriculture • Workers in the informal economy 8 There sh... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769226747.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/10-2.pdf |
Addressing inequality through wage policy Manuela Tomei Director, WORKQUALITY ILO Geneva 1 Why use wage policy to reduce inequality? | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769228709.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2019/02/Tomei-New-York-Wage-Policy-CSocD-Tomei-Feb-2019.pdf |
• In high-income countries, growing wage inequality has been the most important factor in the increase in inequality since the 1980s • In emerging countries where inequality has fallen in the last 15 years, such as in Brazil or Argentina, this was in part a result of reduced wage inequality • Social transfers can corre... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769228709.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2019/02/Tomei-New-York-Wage-Policy-CSocD-Tomei-Feb-2019.pdf |
This call was repeated in the 2008 Declaration on Social Justice for a Fair Globalization • The new report of the Global Commission on the Future of Work calls for the establishment of a “Universal Labour Guarantee”, which would include fundamental rights, maximum limits on working hours, protection of safety and healt... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769228709.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2019/02/Tomei-New-York-Wage-Policy-CSocD-Tomei-Feb-2019.pdf |
• They can reduce the gender pay gaps in the lower half of the wage distribution. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769228709.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2019/02/Tomei-New-York-Wage-Policy-CSocD-Tomei-Feb-2019.pdf |
• Have little or no adverse effect on employment or informality, and can also raise wages in the informal economy through the “lighthouse” effect • But minimum wages need to be: – evidence-based – have wide coverage – adjusted from time to time; and – enforced 5 Strengthening collective bargaining over wages Minimum wa... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769228709.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2019/02/Tomei-New-York-Wage-Policy-CSocD-Tomei-Feb-2019.pdf |
In middle- and low-income countries, the gap is highest amongst the lower paid workers, while in rich countries is highest at the top.
• • Education explains a small fraction of the gender pay gap everywhere.
• More efforts are needed to implement equal pay for women and men, and to address the undervaluation of wome... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769228709.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2019/02/Tomei-New-York-Wage-Policy-CSocD-Tomei-Feb-2019.pdf |
7 The need for combined policy action To reduce inequality, there is a need for an integrated policy package: • Increasing investment in people’s capabilities, such as equal access to education and policies to increase skills of the labour force, particularly at the bottom of the distribution Increasing investment in t... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769228709.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2019/02/Tomei-New-York-Wage-Policy-CSocD-Tomei-Feb-2019.pdf |
Patrick Belser1 Using wage policy to reduce inequality in the labour market2 Introduction The central message of this short paper is that labour markets in general - and the distribution of income from work in particular - are important policy areas that influence the level of inequality. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
While other policies such as those in the area of education or fiscal redistribution are essential, there are limits to what redistribution alone can achieve – particularly in developing countries where fiscal space is limited.
Minimum wages and a fair distribution of income from work should thus be essential componen... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
This paper focuses on three mechanisms that can reduce wage inequality: adequate minimum wages systems, collective bargaining over wages, and the implementation of the principle of equal pay.
II.
The role of wages and labour markets Let us first recognize that when it comes to reducing income inequality, policy actio... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
For many people, the experience of inequality starts at birth – when they are disadvantaged because of their gender, the colour of their skin, or because they never received a birth certificate.
These factors can translate into various other forms of inequality later in life, for example unequal opportunity in accessi... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Indeed, a country’s system of tax and transfers can redistribute income so that households can enjoy greater levels of equality in respect of disposable income. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
The incidence of redistribution through tax and transfers on income inequality depends on many factors, including the amount of taxes levied and distributed, and the progressivity of taxation and transfers, in other words the extent to which high-income earners pay a bigger share of their income in taxes than low-incom... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
It is however also essential to recognize the limits in dealing with growing inequality only through fiscal redistribution, especially since in recent years much of the growth in income inequality originated in more unequal market incomes (before taxes and transfers). | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Furthermore, in recent years many countries’ tax systems have become less progressive rather than ore progressive, 4 through the introduction of fewer tax brackets, the reduction of top 1 Patrick Belser is a Senior Economist, Wage Specialist, at the International Labour Organisation (ILO) in Geneva; The views expressed... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
2 Part of this paper draws upon the International Labour Conference background paper: ILO, Inequalities and the world of work, ILC.109/IV (2021) as well as on a paper submitted to the webinar “Inequalities at work” (3rd edition of “Cátedra OIT/ILO Chair”), held at the University of Coimbra, Faculty of Economics (FEUC),... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
3 See: Keeley Brian, “How Does Income Inequality Affect Our Lives”, Income Inequality: The Gap Between Rich and Poor, Chapter 4, OECD Insights (Paris: OECD Publishing, 2015).
4 A progressive tax system requires those with higher incomes (or greater wealth) to contribute a larger share of their income (or wealth) to ge... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
5 Furthermore, in developing countries, there is relatively limited scope for redistribution through taxes and transfers because of limited fiscal resources, a problem compounded by high informality.
A more comprehensive approach is thus needed, which includes action to make labour markets and incomes from work more e... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
In many high-income countries, growing wage inequality – with large gains at the top of the distribution and stagnating or declining relative wages of workers with lower levels of education and skills at the bottom 6 – has been identified as the single most important factor driving higher income inequality in recent de... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
7 This is relatively unsurprising, since wages from paid employment are, in higher income countries, the largest source of household income, accounting for 70 to 80 per cent on average.
8 In some middle-income countries, a reduction of inequality in labour earnings has contributed to a fall in income inequality. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
In various Latin American countries, a reduction in wage inequality – as a result of sharp increases in wages at the bottom of the distribution, including through formalization, as well as narrowing wage gaps between urban and rural regions and between ethnic minorities and the majority of the population – has been ide... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Keeping in mind that the potential for wage growth depends on a number of key underlying factors, including skills and productivity levels, this short paper focuses on three types of wage policies, whose objectives is to ensure that workers obtain a fair share of the fruits of economic progress, and minimum living wage... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
To protect workers against unduly low pay and to reduce wage inequality at the lower end of the distribution, many countries have, in recent years, adopted new minimum wages or strengthened existing ones.
Germany and South Africa, which both operated a limited number of sectoral minimum wages, adopted new national min... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
In a step towards making minimum wages more inclusive, India extended the coverage of minimum wages from a list of so-called “scheduled” jobs to all wage workers in the country.
Such measures have the potential to reduce wage and income inequalities, including gender pay gaps.
10 The extent to Markets, Institutions a... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Janine Berg (Edward Elgar/ILO, 2015).
5 Salvador Barrios et al., “Progressive Tax Reforms in Flat Tax Countries”, Euromod Working Paper Series EM 2/19, 2019.
6 OECD, Understanding the Socio-economic Divide in Europe.
7 OECD, “Time to Act: Making Inclusive Growth Happen”, OECD Policy Brief, 2017; Luebker, “Redistribu... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
), Towards a Southern Approach to Inequality: Inequality Studies in South Africa and the Global South, (Routledge, 2020).
9 Julián Messina and Joana Silva, Wage Inequality in Latin America; Carlos Rodríguez-Castelán et al., “Understanding the Dynamics of Labor Income Inequality in Latin America”, World Bank Policy Res... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
(W.E.
Upjohn Institute for Employment Research, 2014); Arindrajit Dube, “Impacts of Minimum Wages: Review of the International 2 which they do so, however, depends on a number of factors, including whether the minimum wage has broad legal coverage, enjoys strong compliance by employers, or is fixed at an adequate leve... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
11 Because non-compliance is a major problem facing the informal workforce, minimum wages are more effective at reducing inequalities when they are accompanied by measures to formalize the informal economy12.
From recent evidence, it is clear that minimum wages can a significant impact on inequality. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
The latest Global Wage Report 2020/21 shows that on average, in the 90 percent of countries around the world where minimum wages exist, they affect (or should affect) the wages and incomes of around 20 per cent of all wage earners.
Indeed, globally around 330 million wage earners are paid at or below the applicable mi... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
This figure includes 152 million women.
Although, in absolute number, more men than women earn minimum wages or less, women are over-represented among this category of workers: while women make up 39 per cent of the world’s employees paid above the minimum wage, they represent 47 per cent of the world’s sub-minimum an... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Unfortunately, adequate minimum wage systems are far from universally implemented.
About 10% of countries across the world, including for example Ethiopia or Saudi Arabia, do not have any minimum wage in place.
Furthermore, in about one in five countries where minimum wages exist, they exclude domestic workers and/or... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
To reduce inequality, countries may want to step-up their efforts to operate adequate minimum wage systems, that are determined in full consultation with workers’ and employers’ organisation, that are regularly adjusted, that cover groups of workers in low-pay, and that are well enforced.
Secondly, well-functioning an... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Collective bargaining can have a broad equality-inducing effect by promoting fair wage structures, as well as other attributes of inclusive labour markets, including equal treatment, employee engagement and skills development. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Empirical evidence shows that inequality tends to be lower in countries where a large number of workers are covered by collective agreements.13 When multi-employer arrangements cover a whole sector or region, they tend to favour wage increases for workers at the low end of the income distribution. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Some countries apply extension provisions, sometimes subject to “opt-out” clauses, to apply the terms of collective agreements beyond their signatories, thereby extending the impact on equality to a larger share of the workforce. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Of course, the effects of collective bargaining on wage inequality are complex, in part due to the fact that collective bargaining can take place at different levels – at the national, sectoral or company level – and these differences impact on the extent to which collective bargaining influences the wage structure. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
The effects on wage gender pay gaps or on pay gaps between Evidence”, Independent Report, United Kingdom Government Publication, 2019; Jill Rubery and Damian Grimshaw, “Gender and the Minimum Wage”, Regulating for Decent Work: New Directions in Labour Market Regulation, ed.
Sangheon Lee and Deirdre McCann, 226–254 (Lo... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
12 See ILO Global Wage Report 2020-21 13 OECD, Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, 2019.
3 migrants and nationals can also vary depending on the level of bargaining.
Indeed, collective bargaining can contribute to reducing gender pay gaps, particularly at the low and middle part... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
14 However, the extent to which collective bargaining does so depends on the predominant level of bargaining - with some studies finding that the more centralized the level of bargaining, the smaller the gender pay gap, 15 and also on women’s bargaining power within unions and the bargaining agenda of unions.
16 In so... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
17 In other cases, however, migrants may be under- or even unrepresented by collective representation structures.
Many temporary migration schemes also prevent migrant workers from enjoying their freedom of association and collective bargaining rights.
In many countries and most particularly low-income countries, col... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Available data for developing countries shows that trade union density and collective bargaining coverage are low, with the exception of some emerging economies, such as Argentina, Brazil and South Africa.
18 Expanding the scope of collective bargaining could help to reduce inequalities, as would the inclusion of work... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Thirdly, promoting equal pay.
In the shadows of the growing income inequality, lie many different types of inequalities between men and women, young and old, migrants and nationals, or between different racial and ethnic groups.
These inequalities contribute to slicing up countries and stir resentments. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
In some countries, such inequalities lie at the root of social unrest, discontent, and an unravelling social contract.19 In more extreme cases, persistent inequalities and discrimination against specific groups can be a source of violent conflict.
20 Frequently, different layers of inequality intersect and accumulate,... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
In South Africa, for example, inequality between Black and Whites remains a defining feature of overall income inequality.
The average income of a Black African person represents only just 15% of the average income of a White person, which is to say that White people earn about 6.5 times more income than Black African... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
21 In Brazil, the rate of poverty among Afro- descendants, who represent more than half of the total population, is twice as high as for non 14 See ILO, General Survey concerning the Social Protection Floors Recommendation, 2012 (No.
202); or Jane Pillinger, Verena Schmidt and Nora Wintour, “Negotiating for Gender Equ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
4, 2016.
15 Salimata Sissoko, “Niveau de décentralisation de la négociation et structure des salaires”, Brussels, Bureau Fédéral du Plan Working Paper No.
3-11, 2011.
16 Sarah Gammage, “Labour Market Institutions and Gender Equality”, in Berg, Labour Markets, Institutions and Inequality.
17 Verena Schmidt, “Tempora... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
19 OECD, Under Pressure, 27–28.
20 Frances Stewart (ed.
), Horizontal Inequalities and Conflict: Understanding Group Violence in Multiethnic Societies (Palgrave Macmillan UK, 2008). | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
21 Stat SA, Inequality trends in South Africa Report, 2020 Report-03-10-192017.pdf (statssa.gov.za) 4 Afro-descendants.22 In India, Scheduled Tribes and Scheduled Castes have persistently worse outcomes across health, education, and monetary indicators.23 In the United States, the median black household income was 61% ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Reducing these “horizontal” inequalities represents an enormous challenge and requires action on multiple fronts.
Let us here just highlight the importance of measures to reduce and ultimately eliminate wage discrimination, whereby some people are paid less just because of their gender or characteristics. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
A growing number of countries have in recent years focused their attention on national legislation which prohibits pay discrimination against women and measures that promote equal pay between women and men.
However, there is a long way to go.
While 40 per cent of all countries have adopted the full principle of “equa... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
In addition, some countries have taken steps to promote pay transparency to expose differentials between women and men, requiring (usually large) enterprises to disclose the earnings of their employees.
In recent years, a number of countries have also embraced proactive pay equity laws, which require employers to regu... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
These have contributed to reducing wage inequality between men and women, even if much remains to be done.
The ILO Global Wage Report 2018/19 showed that globally women still earn 20% less than men.
Conclusion Reducing inequalities within countries remains a formidable challenge, which can only be addressed effective... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Adequate wage policies that take into account the importance of both social and economic factors, and ensure the sustainability of enterprises and societies, can contribute to more social justice and less inequality.
22 25% versus 11%.
See COVID-19 Reports: People of African descent and COVID-19: unveiling structural... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769229933.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2022/06/Patrick-Belser-Paper.pdf |
Labor market institutions and the distribution of wages in Latin America.
The role of Minimum Wage Roxana Maurizio Instituto Interdisciplinario de Economía Política Universidad de Buenos Aires and CONICET, Argentina Abstract During the 2000s the purchasing power of the minimum wage (MW) increased in developing countri... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
In Latin America, this positive trend was observed in several countries representing a considerable improvement on the situation in the 1990s.
At the same time, many Latin American countries (LACs) experienced a decline in wage inequality.
The aims of this document is to analyze the evolution of the MW in this region... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
1.
The role of Minimum Wage: theoretical arguments One of the most controversial aspects of the MW concerns the effect it can have on employment demand.
According to the standard model of competitive labor market, fixing the MW above the equilibrium wage will result in reduced employment, adversely affecting those wo... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
However, alternative conceptual frameworks exist, such as monopsonistic market models or the efficiency wage theory, which present the relationship between labor institutions and their effects on the labor market in a different way. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Specifically, under the monopsonistic market model, wages determined from the equilibrium between employment supply and demand are lower than the marginal labor productivity; an increase in the value of the minimum wage does not, therefore, necessarily lead to reduced employment: the effect can be neutral, or even posi... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Dickens, Machin and Manning (1999) and Manning (2003) argue that it is not difficult to construct reasonable theoretical models of the labor market where employers have some monopsony power in both the short and the long run.
The authors claim that the source of the monopsony power of employers, in turn, comes from th... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
In this context employers have a market power over their employees and then exercise this power setting a wage below the competitive equilibrium wage.
Under the efficiency wage theory, in turn, a growth in the minimum wage could increase labor productivity and thereby also employment. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
According to Eyraud and Saget (2008) various factors could reduce any potential negative effects of the minimum wage on employment or even reverse them: “On the supply side, the possibility that most employers have to compensate for higher labor costs by slight changes in work organization leading to productivity gains... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Therefore, the impact of this labor market institution on labor demand is an empirical matter.
Regarding the distribution effects of the minimum wage, it will depend, among other things, on whether the minimum wage affects only the lower tail of the distribution or the entire distribution, whether it covers only forma... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
The basic idea is that those workers initially earning less than the minimum wage will, if the minimum wage is binding, see their wages raised to exactly the level of this institution, thereby resulting in wage compression (“censoring” effect hypothesis).
However, this effect on wage inequality could be weaker if the ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
if wages are determined as multiples of the minimum wage, which would mean that increases in the minimum wage would have proportional effects throughout the entire wage distribution.
However, as long as these “spillover” effects gradually diminish, the positive effects could get stronger.
If the minimum wage has pote... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
The loss of low paying jobs would also make the distribution more equal (“truncation” effect hypothesis), although this is not what one usually means by positively influencing the wage distribution. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Finally, in a labor market composed of formal and informal workers and where the minimum wage affects only formal workers, the increase in its value would lead to wage compression for this group but at the same time it could widen the wage gap between formal and informal workers with -a priori- ambiguous net results. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
However, if the effects of this institution extend to the informal workers, as shown for several LACs (Neri, Gonzaga and Camargo, 2000; Fajnzylber, 2001; Lemos, 2009), the results could have a more equalizing effect, since these workers are generally located in the bottom tail of the wage distribution.
2. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
2.
Evolution of wage inequality and minimum wage in Latin America in the new millennium Although a high level of inequality still characterizes Latin America, during the 2000s several countries in the region showed positive trends in wage distribution, that sharply contrast with those observed in the 1990s and also wi... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
2014; Beccaria, Maurizio and Vazquez, 2014; ECLAC, 2014; Cornia, 2014; Keifman and Maurizio, 2014; Lopez Calva and Lustig, 2010).
As it can be seen in Graph 1, the Gini coefficient of hourly wages fell in all LACs with the only exception of Costa Rica.
Argentina, Bolivia, Brazil, Ecuador; Peru and Uruguay stand out r... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Latin American countries, ca.
2000-2016 Source: Own elaboration based on Household Surveys In all the cases, labor market incomes have been a major contributor to the important fall in family income inequality in the region. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Table 1 presents the results of the decomposition of the variation of the Gini index of per capita family by different income sources, making a distinction between labor market incomes, pensions, government transfers (where cash transfers to households with children are the most important in this group) and other sourc... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Furthermore, given the importance of the occupational category (namely, formal and informal wage earners and nonwage earners) for the structure of employment and labor incomes in the region, the labor source was subdivided accordingly.
Changes in labor income are in all cases the single most important factor, explaini... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
On the other hand, government transfers (mainly conditional cash transfers) explain between 20-30% of the changes in Mexico and Chile.
In turn, pensions have significant explanatory power (about 20%) in Argentina, Brazil and Uruguay.
This is related to the extension of pension coverage to the elderly carried out thro... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Table 1 Decompositions of the variations in Gini index by sources of income Latin American countries Source: Own elaboration based on Household Surveys At the same time, the contribution of wages from a formal job to reducing inequality in countries such as Argentina, Brazil, Chile Peru and Uruguay has been very import... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
2013; Maurizio, 3 ARGENTINABRAZILCHILEECUADORMEXICOPARAGUAYPERUURUGUAYIncome sources2003-20152001-20142000-20092005-20152000-20082002-20142004-20152006-2015Labour income60%56%68%64%60%91%73%68% Registered wage earning jobs38%37%50%23%18%16%38%39% Non- registered wage earning jobs2%1%-5%11%71%32%25%-10% Non-wage earning... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
In contrast, incomes from informal occupations explain most of what happened to labor incomes in México, a fact related to the continued growth of informality.
These results are consistent with studies carried out by ECLAC (2010a, 2010b) which associate the improvements in income distribution during the last fifteen y... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Also, the relative importance of the labor market in reducing inequality and poverty is explained, although with different intensity depending on the country, both by increases in labor income and growth in employment levels.
Regarding labor market, the decline in wage inequality was accompanied, in turn, by the rise ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
The rise was especially strong in Argentina, Brazil and Uruguay and, to a lesser extent, in Chile.
That is why these countries are analyzed in more detail in Section 4.
Graph 2 Changes in the real value of MW in Latin America, ca. | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
2000-2016 Source: Own elaboration based on Household Surveys Nowadays, minimum wage is a labor institution present in all LACs although with diversity of goals, wage setting mechanisms and interactions with collective bargaining (ILO, 2008; Keifman and Maurizio, 2014; Marinakis and Velasco, 2006).
3.
The distribution... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Empirical results for developed countries may not fully useful for developing countries due to the presence of high level of informality, the low compliance with labor institutions and low enforcement capacity, the lighthouse and spill-over effects and the use of MW as a reference for social benefits.
In the following... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
The evidence suggests that MW has a more positive effect on wages of 4 workers at the bottom than the top tail of the wage distribution, implying an equality- enhancing role.
However, it also has impacts beyond those usually observed in the advanced countries: some lighthouse and spill-over effects appear.
Empirical ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
The cases of Argentina, Brazil, Chile and Uruguay 4.1 Evolution of the real value of minimum wage The evolution of the minimum wage in these four countries during the 2000s is presented in Graph 3.
In Argentina, the minimum wage remained at a low nominal and real value from 1993 (200 Argentine pesos, equivalent to US$... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
However, this positive trend began to tail off from 2007, when rising inflation reduced the purchasing power of the minimum wage.
5 COUNTRY STUDY RESULTS Brazil Lemos (2009) MW causes a strong wage compression for both the formal and informal sectors.
Neri et al.
(2000) Two “informal effects” of the MW: 1.
High % o... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Fajnzylber (2001) Spill-over effects Argentina and Brazil Keifman and Maurizio (2012) Equalizing effects in Argentina and Brazil.
Argentina, Brazil, Chile and Uruguay Maurizio and Vázquez (2016) Equalizing effects in Argentina, Brazil and Uruguay.
Mexico Bosch and Manacorda (2010) The fall of the MW between 1989-2001... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
The increase in MW only increases the wages in the urban formal sector but do not have an impact on wages in the uncovered sector.
Gindling et al.
(2013) In 2010 the government implemented a program to increase compliance with MW.
It generated increases in wages of women, young and less skilled workers.
Uruguay Ama... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Increases in MW only lead to significant increases in the wages of private covered sector workers who have wages within 20% of the MW before the change.
Increases in MW increase the probability that a poor worker’s family will move out of poverty.
Developing countries including Brazil and Mexico Rani and Ranjbar (201... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Latin American countries Maloney and Nunez (2003) Numeraire effects in the formal sector and lighthouse effects in the informal sector.
19 Latin American and Caribbean countries Kristensen and Cunningham (2007) Equalizing impacts of minimum wages on formal and informal wage distribution in several countries.
MW has i... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
However, in the 2000s this process intensified, with the value of the minimum wage doubling in real terms.
Graph 3 Evolution of real MW in Argentina, Brazil, Chile and Uruguay Source: Own elaboration based on Household Surveys After the decline in purchasing power of the minimum wage in Chile over much of the 1980s, t... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Finally, Uruguay was the last country to start the process of strengthening the minimum wage.
The minimum wage experienced considerable loss in purchasing power over a long period: in 2004 the minimum wage stood at only 25% of its 1969 value, i.e.
when it was launched.
In 2005 this trend started to reverse, allowing... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
4.2 Relationship between the minimum wage and the wage distribution Different measures of distribution indicators can be used to have a preliminary idea of the possible distribution effects of the MW.
Table 2 shows the minimum wage/average wage ratio, the minimum wage/median wage ratio (or Kaitz index), and the ratio ... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
6 Table 2 Relationship between minimum wage and wage distribution Source: Own elaboration based on Household Surveys In all cases, the ratios expressed by these indicators increased over the period in question.
In Argentina, the Kaitz index was 0.4 in 2003, rising to 0.52 in 2015, while the minimum wage/average wage r... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
These significant increases are explained, at least in part, by the very low value of the minimum wage at the beginning of the period considered.
In Brazil, the minimum wage/average wage ratio increased by 6 p.p while the minimum wage/median wage ratio remained nearly constant.
In 2014 these ratios were 0.44 and 0.6,... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
However, when compared to the tenth wage distribution percentile, the picture changes since it decreased from 93 to 82%.
In Uruguay, owing partly to the very low initial value of the minimum wage, between 2004 and 2015 the minimum wage/average wage ratio increased by 18 p.p while the minimum wage/median wage ratio inc... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
Even more significant was the increase in the value of the minimum wage in relation to the lowest wage distribution percentile: the minimum wage/tenth percentile ratio increased by 23 p.p.
Finally, in the four countries the minimum wage/median wage ratio is similar to that recorded in developed countries, where the Ka... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
However, for the minimum wage to fulfil its role in practice, actual compliance also needs to be ensured.
Accordingly, minimum wage compliance is analyzed for the four countries studied.
4.3 Compliance with the minimum wage Table 3 shows the distribution of full-time wage employment in the 2000s, by wage level compar... | https://docs-lawep.s3.us-east-2.amazonaws.com/1696769236825.pdf | https://www.un.org/development/desa/dspd/wp-content/uploads/sites/22/2018/06/5-1.pdf |
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