Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-Wage Employment
AbstractInternational comparisons of minimum-wage levels have largely focused on the gross value of minimum wages, ignoring the effects of taxation on both labour costs and the net income of employees. This paper presents estimates of the tax burdens facing minimum-wage workers. These are used as a basis for cross-country comparisons of the net earnings of these workers as well as the cost of employing them. In addition, results show the evolution of net incomes and labour costs during the 2000-2005 period and the relative importance of minimum-wage adjustments and tax reforms in driving these changes. Statutory minimum wages are in place in 21 OECD countries, ranging between USD 0.7 and USD 10 per hour. In a number of countries, minimum-wage levels have gone up in real terms in recent years. Given considerable tax burdens even at the lowest wage levels, tax policy measures can have a sizable impact on the net earnings available to low-wage workers. Social contributions and payroll taxes add, on average, around 18% to the cost of employing minimum-wage workers. The international variation of minimum labour costs in dollar terms is enormous, with hourly costs in the highest-cost country (the Netherlands) exceeding those at the bottom (Mexico) by a factor of 12. Differences are also large when compared across countries that are closer geographically or whose economies are more integrated. Despite reductions in non-wage labour costs in several countries, there has been no convergence of minimum labour costs in recent years. This paper is the working paper version of a chapter to appear in the 2007 edition of Taxing Wages, an annual OECD publication. The Taxing Wages chapter will include results for 2006.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2555.
Length: 20 pages
Date of creation: Jan 2007
Date of revision:
Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Other versions of this item:
- Herwig Immervoll, 2007. "Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-Wage Employment," OECD Social, Employment and Migration Working Papers, OECD Publishing 46, OECD Publishing.
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Neumark & William Wascher, 2006.
"Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research,"
NBER Working Papers
12663, National Bureau of Economic Research, Inc.
- David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," Working Papers, University of California-Irvine, Department of Economics 060708, University of California-Irvine, Department of Economics, revised Jan 2007.
- Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005.
"The Behavioral Effects of Minimum Wages,"
IZA Discussion Papers
1625, Institute for the Study of Labor (IZA).
- Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005. "The Behavioural Effects of Minimum Wages," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5115, C.E.P.R. Discussion Papers.
- Armin Falk & Ernst Fehr & Christian Zehnder, . "The Behavioral Effects of Minimum Wages," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 247, Institute for Empirical Research in Economics - University of Zurich.
- Gábor Kertei & János Köll?, 2004.
"Fighting “Low Equilibria” by Doubling the Minimum Wage ? Hungary’s Experiment,"
William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan
2004-644, William Davidson Institute at the University of Michigan.
- Kertesi, Gabor & Kollo, Janos, 2003. "Fighting “Low Equilibria” by Doubling the Minimum Wage? Hungary’s Experiment," IZA Discussion Papers 970, Institute for the Study of Labor (IZA).
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).
If references are entirely missing, you can add them using this form.