Setting the minimum wage

an article by Tito Boeri (Università Bocconi and Fondazione Rodolfo Debenedetti, Italy) published in Labour Economics Volume 19 Number 3 (June 2012)

Abstract

The process leading to the setting of the minimum wage so far has been overlooked by economists.

There are two common ways of setting national minimum wages: they are either government legislated or the by-product 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 68 countries having a statutory national minimum level of pay in the period 1981–2005.

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 can be interpreted as a causal effect of the setting regime on the level of the minimum wage.

JEL classifications J31; J41; J42

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