Setting the Minimum Wage

Tito Boeri

No 4335, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: statutory minimum; collective bargaining; minimum wages (search for similar items in EconPapers)
JEL-codes: J31 J41 J42 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2009-07
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published - published in: Labour Economics, 2012, 19 (3), 281-290

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