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Setting the Minimum Wage

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  • Boeri, Tito

    () (Bocconi University)

Abstract

The process leading to the setting of the minimum wage so far has been fairly overlooked by economists. This paper suggests that this is a serious limitation as the setting regime contributes to explain cross-country variation in the fine-tuning of the minimum wage, hence in the way in which the trade-off between reducing poverty among working people and shutting down low productivity jobs is addressed. There are two common ways of setting national minimum wages: they are either government legislated or are the outcome of collective bargaining agreements, which are extended erga omnes to all workers. We develop a simple model relating the level of the minimum wage to the setting regime. Next, we exploit a new data set on minimum wages in 66 countries that had already or introduced a minimum wage in the period 1981-2005 to test the implications of the model. We find that a Government legislated minimum wage is lower than a wage floor set within collective agreements. This effect survives to several robustness checks and hints at a causal relation between the setting regime and the level of the minimum wage.

Suggested Citation

  • Boeri, Tito, 2009. "Setting the Minimum Wage," IZA Discussion Papers 4335, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4335
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    References listed on IDEAS

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    Cited by:

    1. André Lorentz & Tommaso Ciarli & Maria Savona & Marco Valente, 2016. "The effect of demand-driven structural transformations on growth and technological change," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 219-246, March.
    2. Garnero, Andrea & Kampelmann, Stephan & Rycx, Francois, 2013. "Sharp Teeth or Empty Mouths? Revisiting the Minimum Wage Bite with Sectoral Data," IZA Discussion Papers 7351, Institute for the Study of Labor (IZA).
    3. Matteo G. Richiardi, 2015. "Liberia.Expanding formal employment through labour market reforms," LABORatorio R. Revelli Working Papers Series 144, LABORatorio R. Revelli, Centre for Employment Studies.
    4. Arpaia, Alfonso & Cardoso, Pedro & Kiss, Aron & Van Herck, Kristine & Vandeplas, Anneleen, 2017. "Statutory Minimum Wages in the EU: Institutional Settings and Macroeconomic Implications," IZA Policy Papers 124, Institute for the Study of Labor (IZA).
    5. Danziger, Eliav & Danziger, Leif, 2018. "The Optimal Graduated Minimum Wage and Social Welfare," GLO Discussion Paper Series 188, Global Labor Organization (GLO).
    6. Andrea Garnero & Stephan Kampelmann & François Rycx, 2015. "Sharp Teeth or Empty Mouths? European Institutional Diversity and the Sector-Level Minimum Wage Bite," British Journal of Industrial Relations, London School of Economics, vol. 53(4), pages 760-788, December.
    7. Anna Lukiyanova, 2016. "Regional Variation In The Minimum Wage Policies In The Russian Federation (2007-2015)," Public administration issues, Higher School of Economics, issue 1, pages 81-102.
    8. Ive Marx & Sarah Marchal & Brian Nolan, 2012. "GINI DP 56: Mind the Gap: Net Incomes of Minimum Wage Workers in the EU and the US," GINI Discussion Papers 56, AIAS, Amsterdam Institute for Advanced Labour Studies.
    9. Pedro S. Martins, 2014. "30,000 minimum wages: The economic effects of collective agreement extensions," Working Papers 51, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    10. M. Ali Choudhary & Saima Mahmood & Sajawal Khan & Waqas Ahmed & Gylfi Zoega, 2013. "Sticky Wages in a Developing Country: Lessons from Structured Interviews in Pakistan," School of Economics Discussion Papers 0213, School of Economics, University of Surrey.
    11. Casanova, Luis. & Jiménez, Maribel. & Jiménez, Mónica., 2015. "Calidad del empleo y cumplimiento del salario mínimo en Argentina," ILO Working Papers 994891263402676, International Labour Organization.
    12. Eliav Danziger & Leif Danziger, 2015. "A Pareto-improving Minimum Wage," Economica, London School of Economics and Political Science, vol. 82(326), pages 236-252, April.
    13. Richard Dickens, 2015. "How are minimum wages set?," IZA World of Labor, Institute for the Study of Labor (IZA), pages 211-211, December.
    14. Martins, Pedro S., 2014. "30,000 Minimum Wages: The Economic Effects of Collective Bargaining Extensions," IZA Discussion Papers 8540, Institute for the Study of Labor (IZA).
    15. Salverda, Wiemer & Checchi, Daniele, 2014. "Labour-Market Institutions and the Dispersion of Wage Earnings," IZA Discussion Papers 8220, Institute for the Study of Labor (IZA).
    16. Anna Lukiyanova & Nina Vishnevskaya, 2015. "The Decentralization of Minimum Wage Setting in Russia Economies," HSE Working papers WP BRP 90/EC/2015, National Research University Higher School of Economics.
    17. Nina Vishnevskaya, 2016. "Regionalization of Minimum Wages," Public administration issues, Higher School of Economics, issue 4, pages 27-44.
    18. repec:ilo:ilowps:462988 is not listed on IDEAS

    More about this item

    Keywords

    statutory minimum; collective bargaining; minimum wages;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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