Publication: Minimum Wages and Social Policy : Lessons from Developing Countries
Loading...
Published
2007
ISSN
Date
2012-05-31
Author(s)
Editor(s)
Abstract
This report examines how minimum wages affect the income poverty of workers, their households, and the state. It does not question whether or not the minimum wage is a good policy: instead, it focuses on the tradeoffs in setting the minimum wage level. It takes as a starting point the literature on the wage and employment effects of minimum wages in Latin America and expands the discussion in three ways. First, the household is placed at the center of the debate. Poverty and inequality are measured at the level of the household, rather than at the individual level, to allow for employment and wage trade-offs among individuals who pool their income. Second, new research is presented on how the minimum wage affects groups whose labor market participation and success is considered "vulnerable": that is, youth, women, the low-skilled, and informal sector workers. Third, the implications of the minimum wage on wage and social expenditures of the government are measured. In the end, the report argues that the minimum wage by itself is not a sufficient tool for protecting the income of the poorest households, and that other social protection tools are necessary to complement it. The report has eight sections following the introduction. Chapter 2 presents a history of the minimum wage in LAC, the theory behind the functioning of the minimum wage, and empirical evidence from the OECD to lay a foundation for the Latin American experience. Chapter 3 presents an overview of the minimum wage in the Region, including a discussion of the definition of a minimum wage, institutional design, and who earns it. Chapter 4 focuses on the worker; it summarizes the existing literature, presents new evidence on the wage and employment effects of a minimum wage, and gives special attention to "vulnerable" labor market groups. Chapter 5 turns its attention to the household and presents the new (and only) evidence on the effects of the minimum wage on household poverty and inequality in LAC. Chapter 6 considers the state and discusses the cost of minimum wages to the government. Chapter 7 opens the discussion to the rest of the world and considers the lessons learned in other countries about setting, managing, and enforcing the minimum wage. Finally, chapter 8 concludes and presents policy considerations.
Link to Data Set
Citation
“Cunningham, Wendy. 2007. Minimum Wages and Social Policy : Lessons from Developing Countries. Directions in Development; Human Development. © World Bank. http://hdl.handle.net/10986/6760 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication Democratic Republic of Congo Urbanization Review(Washington, DC: World Bank, 2018)The Democratic Republic of Congo has the third largest urban population in sub-Saharan Africa (estimated at 43% in 2016) after South Africa and Nigeria. It is expected to grow at a rate of 4.1% per year, which corresponds to an additional 1 million residents moving to cities every year. If this trend continues, the urban population could double in just 15 years. Thus, with a population of 12 million and a growth rate of 5.1% per year, Kinshasa is poised to become the most populous city in Africa by 2030. Such strong urban growth comes with two main challenges – the need to make cities livable and inclusive by meeting the high demand for social services, infrastructure, education, health, and other basic services; and the need to make cities more productive by addressing the lack of concentrated economic activity. The Urbanization Review of the Democratic Republic of Congo argues that the country is urbanizing at different rates and identifies five regions (East, South, Central, West and Congo Basin) that present specific challenges and opportunities. The Urbanization Review proposes policy options based on three sets of instruments, known as the three 'I's – Institutions, Infrastructures and Interventions – to help each region respond to its specific needs while reaping the benefits of economic agglomeration The Democratic Republic of the Congo is at a crossroads. The recent decline in commodity prices could constitute an opportunity for the country to diversify its economy and invest in the manufacturing sector. Now is an opportune time for Congolese decision-makers to invest in cities that can lead the country's structural transformation and facilitate greater integration with African and global markets. Such action would position the country well on the path to emergence.Publication An Investment Framework for Nutrition(Washington, DC: World Bank, 2017-04-12)The report estimates the costs, impacts and financing scenarios to achieve the World Health Assembly global nutrition targets for stunting, anemia in women, exclusive breastfeeding and the scaling up of the treatment of severe wasting among young children. To reach these four targets, the world needs $70 billion over 10 years to invest in high-impact nutrition-specific interventions. This investment would have enormous benefits: 65 million cases of stunting and 265 million cases of anemia in women would be prevented in 2025 as compared with the 2015 baseline. In addition, at least 91 million more children would be treated for severe wasting and 105 million additional babies would be exclusively breastfed during the first six months of life over 10 years. Altogether, achieving these targets would avert at least 3.7 million child deaths. Every dollar invested in this package of interventions would yield between $4 and $35 in economic returns, making investing in early nutrition one of the best value-for-money development actions. Although some of the targets—especially those for reducing stunting in children and anemia in women—are ambitious and will require concerted efforts in financing, scale-up, and sustained commitment, recent experience from several countries suggests that meeting these targets is feasible. These investments in the critical 1000 day window of early childhood are inalienable and portable and will pay lifelong dividends – not only for children directly affected but also for us all in the form of more robust societies – that will drive future economies.Publication At a Crossroads(World Bank, Washington, DC, 2017-05-02)Higher education (HE) has expanded dramatically in Latin America and the Caribbean (LAC) since 2000. While access became more equitable, quality concerns remain. This volume studies the expansion, as well as HE quality, variety and equity in LAC. It investigates the expansion’s demand and supply drivers, and outlines policy implications.Publication Options for Aged Care in China(Washington, DC: World Bank, 2018-11-20)China is aging at an unprecedented rate. Improvements in life expectancy and the consequences of the decades-old family planning policy have led to a rapid increase in the elderly population. According to the United Nations World Population Prospects, the proportion of older people age 65 and over will increase by about one-fourth by 2030, and the elderly will account for about one quarter of the total population by 2050. Population aging will not only pose challenges for elder care but also have an impact on the economy and all aspects of society (World Bank, 2016a). The government is aware of the need to develop an efficient and sustainable approach to aged care. To this end, the General Office of the State Council issued the 12th Five-Year Plan for the Development of Aged Care Services in China and the Development Plan for a System of Social Services for the Aged (2011-2015). It is now in the process of formulating the 13th Five-Year National Plan on Aging, which will further elaborate and finalize the reform roadmap for 2016 to 2020. The Plan is expected to be finalized and launched by June 2016. The National Development and Reform Commission (NDRC) helped draft these plans and is now leading the development of policy measures for the provision of social services for the elderly. This volume has been prepared to support the translation of the broad ideas on aged care provision expressed in the 12th and 13th Five-Year Plans and other government plans into reality and to help the government tackle the challenges described above. It strives to identify a policy framework that fits the Chinese context and can be put in place gradually. Specifically, it aims to provide an up-to-date understanding of the evolving aged care landscape in China; review international experiences in long-term care provision, financing, and quality assurance and assess their relevance to China’s current situation; discuss implications of current developments and trends for the future of aged care in China; and propose policy options based on available evidence and best practices.Publication Transforming Karachi into a Livable and Competitive Megacity(Washington, DC: World Bank, 2018-02-27)With a population of 16 million, Karachi is the largest megacity in Pakistan. Despite being a large city that is home to many, it has seen a substantial decline in quality of life and economic competitiveness in recent decades. Basic service delivery is very poor, with very low indicators for water supply, sanitation, public transport and public spaces. Pollution levels are high, and the city is vulnerable to disasters and climate change. A highly complex political economy, institutional fragmentation, land contestation, crime and security issues and social exclusion exacerbate these issues and make city management challenging. The Karachi City Diagnostic and Transformation Strategy attempts to present detailed data on the economy, livability and key urban services of the city, by identifying and quantifying the requirements to bridge the services gap in the city. It also proposes pathways towards the transformation of Karachi into a more livable, inclusive and economically competitive city by outlining policy actions that the city can undertake. The first part of the report provides an in-depth review of Karachi and is organized into three themes focused on key aspects of city management: (i) city growth and prosperity – discussing city economy, competitiveness, business environment and poverty; (ii) city livability – discussing urban and spatial planning, urban governance and municipal service delivery (water and sanitation, public transport and solid waste); and (iii) sustainability and inclusiveness – discussing the city’s long term resilience based on fiscal management, disaster resilience and climate change, and social inclusion. In each section, a diagnostic is provided on the issues, along with possible prioritized actions to resolve them. The second part of the report concludes by identifying four pillars for city transformation. These include: (i) building inclusive, coordinated and accountable institutions; (ii) greening Karachi for sustainability and resilience; (iii) leveraging on the city's economic, social and environmental assets; and (iv) creating a smart city through smart policies and technology.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Minimum Wage Policy : Lessons with a Focus on the ASEAN Region(Washington, DC, 2013-07-30)As developing economies continue to mature and enter the next phase of reforms, labor market issues and key policy instruments such as the minimum wage increasingly come to the forefront. Increased globalization and wider competition compel countries to make labor markets more flexible so as not to hurt competitiveness. At the same time, policymakers face pressure to rethink labor market regulations (and social safety nets) to avoid disadvantaging workers, especially the most vulnerable who are more prone to employment insecurity. Evidence of the impact of minimum wage policies in the East Asian context and in Association of South East Asian Nations (ASEAN) countries, more specifically remains very limited. A thorough literature search identified only a few rigorous studies of the impact of minimum wages on important welfare outcomes in ASEAN countries, and some of the evidence was narrowly focused on one sector and period or from a time when the institutional setup and management of the policy was different from today. Given the relevance of the minimum wage policy in ASEAN economies, which are experiencing rapid economic growth accompanied by rising income inequality and persistent poverty among unskilled workers, having this evidence seems critical. The objective of this report is to contribute to the ongoing (and renewed) debate on the use of minimum wage policy as a tool for addressing various socioeconomic issues. It assumes minimum wages will remain in place, and the analysis seeks to address knowledge gaps on the policy's effects on worker outcomes and firm performance in order to provide guidance to policymakers in ASEAN countries (and similar contexts) on how to best manage the policy. This report consists of seven chapters and is divided into three parts. Part one focuses on the minimum wage policy, its historical evolution, and the current institutional context across ASEAN countries. Part two delves into the socio-economic impacts of the minimum wage policy on workers, households, firms, the economy, and the ASEAN region. Part three links the findings from each country to the ASEAN regional context and brings all the analysis together into a policy and operational discussion.Publication Labor Market Policies under a Youth Bulge : How to Benefit from Demographic Dividend in Pakistan(World Bank, Washington, DC, 2012-12)This paper assesses labor market trends and outcomes in Pakistan over the past decade. It shows that despite a high rate of employment growth, labor market outcomes have been disappointing: most jobs have been created in low productivity sectors/activities, and even if they provide a minimum level of income to often avoid poverty, they remain low quality jobs providing little or no protection to workers against shocks. In addition, female participation rates for women are very low and there are large income disparities between rural and urban areas, and across sectors. A fundamental part of the problem is the low level of education of the labor force. Pakistan is currently in the midst of a demographic transition that is bringing a growing number of youth into the labor market. This youth bulge that is unwinding opens both challenges and opportunities. Challenges because of the need to create enough jobs to employ new entrants; Opportunities, because if this is done the country will enjoy a demographic dividend , as the share of those employed relative to the dependent increases, driving up income per capita and standards of living.Publication Assessing Interactions among Education, Social Insurance, and Labor Market Policies in a General Equilibrium Framework : An Application to Morocco(World Bank, Washington, DC, 2008-07)This paper develops a general equilibrium model to analyze the marginal and joint impacts that alternative macroeconomic, education, and social protection policies have on the dynamics of employment and unemployment by skill level. The model introduces a disaggregated treatment of the labor market that incorporates an informal sub-sector in every sector of the economy. The analysis explicitly models the distribution of skills in the labor force by following over time sex-age cohorts across various levels of the education system and in the labor market. And it integrates a module that projects the revenues and expenditures of the pension system. The model is applied to the case of Morocco. Simulations show that even under positive assumptions regarding economic growth, unemployment rates are likely to remain close to current levels in the next decade. The paper argues that only an integrated package of policies that affect the macro-economy, the investment climate, and the education and social protection systems would allow sustainable creation of enough "good quality" jobs.Publication Indonesia Jobs Report(World Bank, Jakarta, 2010-06)Indonesia has enjoyed a demographic dividend over the last forty years. The working population has been growing faster than the population of non-working dependents. This presents a major opportunity for economic growth and poverty reduction, provided that more jobs and better jobs are created to employ a workforce, which will grow by an estimated 20 million workers over the next ten years. Today's policy makers in Indonesia face a strategic challenge in identifying which policies and programs will spur the creation of good jobs while, at the same time, ensuring that workers are better protected from risks threatening their income security. Decisions about labor policies are particularly difficult because they can directly affect the well-being of workers, both inside and outside the formal jobs market, and the firms that are the main engines of job growth. Sound empirical data will help guide the debate around labor reform. The Indonesia jobs report, prepared by the World Bank in cooperation with the Government of Indonesia and local research partners, is the most comprehensive assessment of the country's labor market that has been carried out in the last decade. The report uses the most up-to-date data available to examine the performance of the labor market, changes in the supply of workers, and the effects of labor policies. The findings will help inform future policy directions and contribute towards evidence-based decision making. Stimulating the growth of better jobs requires a multi-pronged approach. This report recommends much needed reforms of labor policies and programs. Equally important, however, are reforms that accelerate job creation by improving infrastructure and the investment climate, alongside reforms that aim at improving the quality of education. Success will depend on working partnerships between the government, employer associations, labor unions and other civil society groups, with the support of Indonesia's think tanks and international development partners. This report helps reinvigorate policy dialogue about job creation and worker security. Learning from experiences and international best practices, Indonesia will be better prepared to navigate a course towards 'win-win' solutions that accelerate the creation of better jobs without sacrificing adequate protection for workers.Publication Labor Market Policy in Developing Countries : A Selective Review of the Literature and Needs for the Future(World Bank, Washington, DC, 2007-09)This paper presents a selective overview of the literature on modeling labor market policies in developing countries. It considers welfare economics, theoretical models, and empirical evidence to highlight the three general features needed in future research on labor market policy in developing countries. The author identifies desirable research components (welfare economics, theoretical modeling, and empirical modeling) and pitfalls in the literature (inappropriate use of productivity, reliance on wrong kinds of empirical studies, lack of cost-benefit analysis, attention to only a subset of the goods and bads, and fallacy of composition). The paper concludes with suggested topics and methods for future research. The author states that sound labor market policy requires sound labor market models. The paper makes a case for developing policy based on explicit evaluation criteria, specific theoretical models, and comprehensive empirical evidence.
Users also downloaded
Showing related downloaded files
Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication South Asia Development Update, October 2024: Women, Jobs, and Growth(Washington, DC: World Bank, 2024-10-10)South Asia’s growth is on track to exceed earlier expectations, in a broad-based upturn. The region is expected to remain the fastest-growing among emerging market and developing economies (EMDEs). Several risks could upend this generally promising outlook, including extreme weather events, social unrest, and policy missteps, such as reform delays. But South Asian countries also have considerable untapped potential that could help them further boost productivity growth and employment and adapt to climate change. In particular, with about two-thirds of the region’s working-age women out of the labor force, raising female employment rates to those of men could increase per capita income by as much as one-half. Measures to accelerate job creation, remove obstacles to women working, and equalize gender rights would be more effective if combined with a shift toward social norms that looked more favorably on working women. Also, most South Asian countries rank among the EMDEs least open to global trade and investment. Greater openness could boost women’s employment, spur the growth of firms, and allow the region to take better advantage of the reshaping of global supply chains and trade. Reducing the cost of conducting business could help the region better harness large-scale remittance inflows.Publication World Bank East Asia and the Pacific Economic Update, October 2024: Jobs and Technology(Washington, DC: World Bank, 2024-10-07)East Asia and the Pacific, seen in the context of the world economy, stands out as a paragon of development. Despite the recent ravages of the pandemic and the persistent tensions of geopolitics, the region is growing at stably high rates and the benefits are widely shared. But compared to its own past and potential, the region’s economic performance is less impressive. Growth is still below pre-pandemic rates, except in Indonesia, and output has not yet recovered to pre-pandemic levels in several countries, especially in the Pacific. This Economic Update highlights three key developments: shifting regional growth dynamics as China’s growth slows, changing trade patterns due to global tensions, and the impact of technologies such as robots, artificial intelligence, and digital platforms on jobs. The report calls for productivity-enhancing structural reforms to strengthen domestic growth drivers through; deeper international trade agreements to foster more open and stable trade regimes; deeper technical, digital, and soft skills while addressing impediments to labor mobility, factor price distortions and expanding social protection for workers in the digital informal economy to boost productivity and employment.Publication Remarks to the G20 Finance Ministers and Central Bank Governors Meeting(World Bank, Washington, DC, 2020-11-20)World Bank Group President David Malpass said that while some countries are recovering, the pandemic is still taking a terrible toll, with poverty levels rising sharply. He highlighted on the health emergency response programs in one hundred twelve countries using a fast-track mechanism that is now able to access a further window of twelve billion in funding for vaccine purchases and delivery. He also mentioned that the World Bank is already at work in cooperation with WHO, UNICEF, the Global Fund and GAVI on rapid vaccine deployment readiness assessments for one hundred countries. He spoke about IFC working in coordination with CEPI to invest a further four billion in manufacturing and distribution of vaccines and products that support vaccination programs. He recognized that fragile conflict and violence (FCV) states are most in need, and World Bank's engagement with them. Under his Presidency, the World Bank Group has invested more in climate finance than at any time in its history. He mentioned that IDA is frontloading its financing to make more resources available for the poorest countries. He highlighted on an important step that the G20 call on DSSI beneficiary countries to commit to disclose all public sector financial commitments. The Development Committee that asked the Bank and the IMF to propose more actions to address the unsustainable debt burdens of low- and middle-income countries. He concluded that the fuller transparency is the only way to balance the interests of the people with the interests of those signing the debt and investment contracts.Publication Social Gains in the Balance : A Fiscal Policy Challenge for Latin America and the Caribbean(Washington, DC, 2014-02-24)In 2012, the Latin America and the Caribbean (LAC) region continued its successful drive to reduce poverty and build the middle class. The proportion of the region's 600 million people living in extreme poverty, defined in the region as life on less than $2.50 a day, was cut in half between 2003 and 2012 to 12.3 percent. Reflecting the upward mobility out of poverty, households vulnerable to falling back into poverty became the largest group in LAC in 2005, and represent almost 38 percent of the population. However, in the last two years, the share of vulnerable households has started to decline. The middle class, currently 34.3 percent of the population, is growing rapidly and is projected to replace the vulnerable as the largest economic group in LAC by 2016. The Southern Cone region (including Brazil) continued to be the most dynamic region and the main driver of poverty reduction in LAC, while poverty in Central America and Mexico proved more stubborn. About 68 percent of poverty reduction between 2003 and 2012 was driven by economic growth, with the remaining 32 percent arising from decline in inequality. Overall, equality of access to basic childhood goods and services has improved in recent years. Yet access can be further improved, and serious issues remain concerning the quality of those goods and services, particularly in education and housing infrastructure. Moreover, access increases with parental education and income or assets, reflecting low intergenerational mobility in many countries in the region. As with poverty reduction, most of the progress in equality of access since 2000 has come in the Southern Cone and the Andean regions, while many of Central America's countries managed only small improvements. There are also severe differences at the subnational level and between urban and rural areas, highlighting the need to strengthen the capacity of local governments to deliver high quality basic services to all their citizens.