Minimum Wages in Developed and Developing Countries

Over the last decades, minimum wages gained importance. This reflects in many cases the weakness of unions which were not able to prevent in some segments of the labour market very low wages compared to the national average wage. To a certain extent, minimum wages became a substitute for efficient wage bargaining between trade unions and employers’ associations. Germany is a good example of the need to implement minimum wages in some German industries in regions where union density is too low and employers’ associations represent so few firms that wage bargaining is insufficient to create a general level for wages. Some social democratic parties which rule in countries with weak unions and very flexible labour markets have been using minimum wages to include a social dimension in their otherwise rather neoliberal policies. Great Britain under Tony Blair is a good example of this case as well as Bill Clinton in the 1990s in the United States. However, there are also countries with a more or less only symbolic meaning of minimum wages because statutory wages are too low to affect a relevant number of employees. For this case, Spain is a good example.

Minimum wages are a theoretical and political topic in developing and developed countries. In both groups of countries, statutory minimum wages cover the formal sector of the economy; that means the sector in which statutory provisions are at least more or less followed. In both groups of countries an informal sector exists which is beyond the direct reach of statutory provisions. Typically in developing countries, the informal sector is much bigger than the formal sector and minimum wages may also indirectly influence wages in the former.