Minimum Wage Decomposition: An International Comparative Analysis

Abstract

The Minimum Wage (MW) is a redistributive government policy, most certainly originally related to humanitarian issues and social peace. Actually, twenty‑eight out of thirty ‑six OECD countries have a minimum wage. Wages are necessarily limited by what, on average, is produced per worker. There are several ways of comparing minimum wages internationally. The ratio MW/Productivity was computed for all OECD countries. Generosity of this policy, measured by this ratio, is different across countries and it seems there is no discernible pattern to group them. This paper analyzes the generosity of MW in several countries, concerning its scope, wage inequality, social security contributions, and the weight of labour costs in what is produced per worker. To this end, ratio (A) (i.e. MW/Productivity) is decomposed in: (B) (i.e. MW relation to wage distribution); (C) wage inequality; (D) non‑wage labour costs; and (E) unit labour costs. Some conclusions are drawn from the various combinations of ratio values both within and across countries. Finally, future challenges for research are analyzed, namely the inclusion of political variables related to relevant actors and institutionalized rules of the political process.