Minimum Wages and Social Policy: Lessons from Developing Countries

By Wendy V. Cunningham | Go to book overview

CHAPTER 3
Minimum Wage Institutions
in LAC: What Are They and
Who Earns Them?

What Is a Minimum Wage?

In the simplest terms, a minimum wage is a legally mandated lower bound for wages, but the term “legally mandated” is vague, leading to many different kinds of minimum wage institutions. In the most straightforward cases, such as Brazil or Bolivia, the federal government identifies a wage level and all employers in the country must pay at that level or above it. In other countries, such as the United States, a federal minimum wage may be increased by a state-specific minimum wage. Yet other countries, such as Italy, have a collection of wages that are negotiated by trade unions, thus blurring the distinction between a minimum wage and a contract wage. In such cases, the question may be asked whether Italy has a minimum wage at all, or whether it simply has many negotiated wages that are backed by an effective monitoring network and an able judicial system (Trinder 1984).

The coverage, enforcement, and degree to which the minimum wage affects the wage distribution differ across countries. The coverage of the minimum wage is that fraction of the population for whom the policy is legally guaranteed—that is, the formal sector. A minimum wage is enforced if everyone who is covered earns at least the minimum. Finally, it is binding if it actually affects wage distribution, whether through enforcement or other factors. It is completely binding if it creates a wage floor, whereas it is

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