IEMS Newsletter - Apr 2015 - page 1

Issue
Minimum wage policies are gaining
popularity globally and in the major emerging
markets, despite unsettled debates over the
impacts of minimum wage regulations. In this
brief, we summarize what is known about the
role of minimum wages in emerging market
countries, focusing on the BRICS countries
(Brazil, Russia, India, China, and South
Africa). We examine how minimum wages
are set, how well they are implemented, and
their impacts on employment, inequality,
and informality, concluding with policy
recommendations.
Assessment
H o w a r e m i n i m u m w a g e s s e t ?
Government-set minimum wages exist in
all BRICS countries. However, the policy
process for determining minimum wages
varies greatly. In China and Russia, central
governments have led major reforms of
minimum wage policy (China in 2004,
Russia in 2007) but have decentralized
minimum-wage setting authority to regional
governments. In Brazil, following military
dictatorships, the 1988 Constitution required
that a national minimum wage be set to
meet the basic needs of all workers and
their families. In India, central and state
governments appoint tripartite advisory
boards composed of government, employer,
and worker representatives. In South Africa,
minimum wages are negotiated as part
of collective bargaining processes in each
sector, with unions representing workers’
interests.
In some countries, minimum wage levels
are different for different types of work.
There are 11 sectoral minimum wages in
South Africa. India has no less than 1171
different minimum wages depending on
location, education, skill level, industry,
etc. In both countries, many types of work
are not covered at all by minimum wage
regulations.
No t s u r p r i s i n g l y, t h e s e d i f f e r e n t
procedures reflect different objectives,
priorities, and implementation challenges,
leading to different outcomes. Table 1
summarizes the growth rates in minimum
wages and average wages over the period
2003 to 2011 as well as the ratio of minimum
wages to mean wages in 2011. Figure 1 plots
trends in real minimum wages, real wages,
and unemployment rates since 2003 for
each BRICS country. In the figure for each
country, the mean wage in 2003 is set equal
to 100 and all other wages (both minimum
APRIL
2015
THOUGHT
LEADERSHIP
BRIEF
No.7
1
Migrant Worker in Dormitory
by the World Bank, CC BY 2.0,
How Do Minimum Wage
Policies Affect Workers
in Emerging Markets?
Albert Park and Qing Xia, HKUST Institute for Emerging Market Studies
KEY POINTS
The policy process for
determining minimum wage
levels varies greatly across BRICS
countries (Brazil, Russia, India,
China, and South Africa), leading
to differences in objectives,
priorities, and outcomes.
Unlike in advanced countries,
lack of compliance with
minimum wage regulations is
a major challenge in emerging
markets, reducing policy impacts
and creating an uneven playing
field when implementation is
uneven across sectors and firms.
Although minimum wage
regulations do increase wages
at the bottom of the wage
distribution, evidence on the
impact of minimum wage
regulations on employment and
on inequality and poverty is
mixed and incomplete. Impacts
depend upon compliance.
Minimum wage regulations may
have increased informality in
Russia and Brazil.
1 2,3,4
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