Table of Contents Page Introduction .................................................................................................................................... 2 Chapter 1. How to define a minimum wage? ................................................................................ 3 Chapter 2. How many different minimum wage rates should there be? .................................... 14 Chapter 3. Who should set minimum wages? ............................................................................. 24 Chapter 4. Who should be getting minimum wages? ................................................................. 32 Chapter 5. Setting and adjusting minimum wage levels ............................................................. 42 Chapter 6. How to enforce minimum wages? ............................................................................. 53 Chapter 7. Monitoring the effects of minimum wages ............................................................... 68 Chapter 8. Minimum wages for domestic workers ..................................................................... 80 Annex 1: Minimum Wages for Public Sector Workers ................................................................. 98 Annex 2: The needs of workers and their families ..................................................................... 101 Annex 3: The effects of inflation on real minimum wages ......................................................... 109 Annex 4: Proportions of workers affected and impact on total wage bill ................................. 114 Annex 5: Minimum wages and labour productivity ................................................................... 116 1 Minimum wages: an introduction Reducing inequality and promoting decent work for all women and men have been identified as key objectives in the 2030 Sustainable Development Agenda, adopted at the United Nations in 2015. The 17 Sustainable Development Goals (SDGs) seek to balance the three dimensions of sustainable development: the economic, social and environmental. Goal 8 calls for “sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”, and highlights the importance of achieving equal pay for work of equal value, and protecting labour rights. Goal 10 seeks to “reduce inequality within and among countries”, emphasizing income growth of the bottom 40 per cent of the population, the elimination of discrimination, as well as the adoption of policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality. Well-designed and effective minimum wages can contribute to these objectives. They can help to ensure “a just and equitable share of the fruits of progress to all”1 and “a minimum living wage to all employed and in need of such protection”.2 Poorly designed minimum wages, by contrast, can put workers’ well-being at risk, undermine effective implementation, and risk encouraging informality. The present policy guide builds on existing ILO labour standards, the latest global review of national laws and practices undertaken at the ILO,3 as well as on years of experience accumulated in the context of ILO cooperation with Governments and social partners around the world. The guide reflects the diversity of international practices and the different choices that can be made, depending on national preferences and country circumstances. It does not seek to promote a single model on all countries. It does however emphasize key principles of good practice, and provides examples on the pros and cons of different policy options. Finally the guide emphasizes another key SDG principle – partnership. When it comes to minimum wage fixing, only social dialogue and collective bargaining can help strike the balance between the legitimate needs of both workers and enterprises. 1 See the Resolution concerning the recurrent discussion on social protection (labour protection) 2 See the ILO Declaration on Social Justice for a Fair Globalization 3 ILO, 2014, “Minimum wage systems”, General Survey of the reports on the Minimum Wage Fixing Convention, 1970 (No.131), and the Minimum Wage Fixing Recommendation, 1970 (No.135) . As well as the Outcome of the tripartite discussion of this report. 2 Chapter 1 – How to define a minimum wage? Table of Contents Summary 1.1 Definition and purpose 1.2 How many countries have a minimum wage? 1.3 A short history 1.4 The main ILO conventions 1.5 What is included in a minimum wage? 1.6 Payment in kind 1.7 Piece rate pay 1.8 Hourly or monthly rates? Summary Minimum wages have been defined as the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract. Following this definition, minimum wages exist in more than 90 per cent of the International Labour Organisation's (ILO) member States. The purpose of minimum wages is to protect workers against unduly low pay. They help ensure a just and equitable share of the fruits of progress to all, and a minimum living wage to all who are employed and in need of such protection. Minimum wages can also be one element of a policy to overcome poverty and reduce inequality, including those between men and women. Minimum wage systems should be defined and designed in a way to supplement and reinforce other social and employment policies, including collective bargaining, which is used to set terms of employment and working conditions. Historically, the purpose of minimum wages has evolved from a policy tool to be used selectively in a few low-wage sectors to an instrument of much broader coverage. ILO Conventions reflect this evolution: • The Minimum Wage Fixing Machinery Convention, 1928 (No. 26), encouraged countries to implement minimum wages where “no arrangements exist for the effective regulation of wages by collective agreement or otherwise and wages are exceptionally low”. • Later, the Minimum Wage Fixing Convention, 1970 (No. 131) called for coverage of “all groups of wage earners whose terms of employment are such that coverage would be appropriate”. The principle of full consultation with social partners lies at the heart of this Convention. 3 In defining a minimum wage, it is important to be specific about which components of a wage can be counted in the minimum, the extent and conditions under which payment in-kind can be allowed, how the minimum is calculated for workers with piece rate pay, and if the minimum is an hourly and/or a monthly rate. 1.1 Definition and purpose Minimum wages have been defined as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”.4 This definition refers to the binding nature of minimum wages, regardless of the method of fixing them. Minimum wages can be set by statute, decision of a competent authority, a wage board, a wage council, or by industrial or labour courts or tribunals. Minimum wages can also be set by giving the force of law to provisions of collective agreements. The purpose of minimum wages is to protect workers against unduly low pay. They help ensure a just and equitable share of the fruits of progress to all, and a minimum living wage to all who are employed and in need of such protection. Minimum wages can also be one element of a policy to overcome poverty and reduce inequality, including those between men and women, by promoting the right to equal remuneration for work of equal value. Minimum wage systems should not be seen or used in isolation, but should be designed in a way to supplement and reinforce other social and employment policies. Several types of measures can be used to tackle income and labour market inequality, including pro-employment policies, social transfers, and creating an enabling environment for sustainable enterprises. The purpose of a minimum wage, which sets a floor, should also be distinguished from collective bargaining, which can be used to set wages above an existing floor. Figure 1 shows a hypothetical wage distribution with a "minimum wage zone" and a "collective bargaining zone" which can be used to establish minimum standards and to set wages above an existing floor. Figure 2 illustrates that the effectiveness of minimum wages depends on many factors, including the extent to which they afford protection to all workers in an employment relationship, including women, and youth and migrant workers, regardless of their contractual arrangements, as well as all industries and occupations in the economy (coverage); whether they are set and adjusted at an adequate level that covers the needs of workers and their families, while taking into account economic factors (level); and whether employers comply with minimum wage regulations (compliance). 4 ILO: General Survey concerning the Minimum Wage Fixing Convention, 1970 (No. 131), and the Minimum Wage Fixing Recommendation, 1970 (No. 135), Committee of Experts on the Application of Conventions and Recommendations, 2014 . 4 Figure 1. The distribution of wages How to read this figure: Figure 1 shows a hypothetical wage distribution of a population of 56 wage-earners before the introduction of a minimum wage. The level of wages is on the horizontal axis, and the number of wage earners is on the vertical axis. We see the full range of market wages, including a relatively small proportion of