Chapter 6: How to enforce minimum wages

6.9 Public employment programmes

Renewed interest in public employment programmes (PEPs)

In recent years, many developing countries have shown renewed interest in and commitment to developing public employment programmes (PEPs), including public works programmes (PWPs) and/or employment guarantee schemes (EGSs). Their main purpose is to combine the generation of short-term employment, the reduction of poverty, and the creation or development of infrastructure and other assets (such as public buildings) or environmental protection projects.

Examples include the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) in India, the Expanded Public Works Programmes (EPWP) in South Africa, or the Productive Safety Net Programme (PSNP) in Ethiopia.

Wage rates are an important aspect of the design of public employment programmes, since they affect the number of people who volunteer to take part in them (the labour supply response), the amount of transfer benefits that participants receive, and ultimately the cost of these programmes. In addition, the wage rate set in public employment programmes determines the extent to which these programmes attract poorer sections of the population and has implications for other economic activities.

If the wage rate is set too high fewer jobs can be created for a given budget, the programmes are generally less effective at targeting the poor, and they can have disruptive effects on other sectors. If wages are set too low, the welfare impact on participants’ households will be insufficient, and the result is likely to be low morale, high turnover, and low productivity.

Why minimum wages in PEPs contribute to better compliance in general

A positive effect of public employment programmes which comply with statutory minimum wages is to promote compliance also in the private sector. This happens because private employers who pay less than the minimum wage risk losing their employees, who will prefer to work in public works programmes or employment guarantee schemes. This improves workers’ wage negotiation capacity. In addition, public employment programmes can create awareness among workers about their basic entitlements.

By acting as the “employer of last resort”, the government can thus encourage compliance in the private sector. Such an effect has been observed, for example, in India.