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Setting and adjusting the level is perhaps the most challenging part of minimum wage fixing. If set too low, minimum wages will have little effect in protecting workers and their families against unduly low pay or poverty. If set too high, minimum wages will be poorly complied with and/or have adverse employment effects.
A balanced and evidence-based approach is necessary which takes into account, on the one hand, the needs of workers and their families and, on the other, economic factors. An appropriate balance between these two sets of considerations is essential to ensuring that minimum wages are adapted to the national context, and that both the effective protection of workers and the development of sustainable enterprises is taken into account.
An evidence-based approach also implies that there should be clear criteria to guide discussions on the level of minimum wages, as well as reliable statistical indicators to support governments and social partners in their deliberations. Common statistical indicators that are used include the general level and distribution of wages, the evolution and differences across regions in the cost of living, as well as national or sectoral levels of labour productivity and rates of economic growth.
To maintain their relevance, minimum wage levels need to be adjusted from time to time. Failure to do so may lead to an erosion of the purchasing power of workers who earn the minimum when prices of goods and services are rising, or may lead to more wage inequality when the general level of wages is increasing.
Because the social and economic effects of minimum wages are never fully predictable, it is essential to ensure that the impact of minimum wage adjustments is adequately monitored and studied.
If mathematical formulas are used to periodically adjust minimum wage rates, these should be consulted with social partners and not be used as a substitute for social dialogue.