Chapter 6: How to enforce minimum wages

6.1 The need for a comprehensive approach

A comprehensive approach is needed because compliance is affected by the level at which minimum wages are set relative to average wages, as well as by institutional factors.

Figure 1. below shows that non-compliance is higher in Peru and Costa Rica, where minimum wages are higher, than in Uruguay and Chile. However, institutional factors matter too: although the level of minimum wages is similar in Peru and Costa Rica, non-compliance is substantially higher in the former than the latter. Although non-compliance is relatively low in both Uruguay and in Chile, this result is achieved in spite of a substantially higher minimum wage in Chile than in Uruguay.1

When minimum wages are very low, it is quite natural that only a few workers will be paid less than the minimum. Only when minimum wages truly “bite” does compliance become a challenge.

Figure 1. Minimum wage and non-compliance in Latin America, urban sector, 2011
Source: Marinakis (2014).

How to strengthen institutional factors?

The Minimum Wage Fixing Convention, 1970 (No. 131), provides that “Appropriate measures, such as adequate inspection reinforced by other necessary measures, shall be taken to ensure the effective application of all provisions relating to minimum wages” (Article 5).

The Minimum Wage Fixing Recommendation, 1970 (No. 135), suggests that measures should include:

(a) arrangements for giving publicity to minimum wage provisions in languages and dialects understood by workers who need protection, adapted where necessary to the needs of illiterate persons;

(b) the employment of a sufficient number of adequately trained inspectors equipped with the powers and facilities necessary to carry out their duties;

(c) adequate penalties for infringement of the provisions relating to minimum wages;

(d) simplification of legal provisions and procedures, and other appropriate means of enabling workers effectively to exercise their rights under minimum wage provisions;

(e) the association of employers’ and workers’ organizations in efforts to protect workers against abuses; and

(f) adequate protection of workers against victimization.

Overly complex minimum wage systems can also reduce compliance. Awareness raising and labour inspection are easier in countries with relatively simple minimum wages rather than too complex sectoral or occupational minimum wages, with numerous rates. A multiplicity of rates obviously makes minimum wage rates much more difficult to communicate and inspect.

1 Marinakis, A. 2014. Incumplimiento con el salario minimo en America Latina. El peso de los factores económicos e institucionales, (OIT, Santiago).