Keeping it simple

Learn more about simple systems

Simple minimum wage systems aim to determine an effective wage floor. One advantage is that the determination of the initial rate and the following adjustments can be based on relatively simple aggregate information and macroeconomic data. This information can be processed and analysed by a wage-setting body, such as a national tripartite minimum wage commission, with the support of a technical secretariat that provides reports and basic statistics.

A second advantage of simple minimum wage systems is the ease with which the applicable rate(s) can be communicated and disseminated. When a country has a national minimum wage it is easier for every worker to know the prevailing rate. Dissemination is also easier when countries with national minimum wages make the adjustments regularly, such as at the same time every year.

Thirdly, simple minimum wage systems are also easier to monitor. Labour inspectors need only consider the wages paid in relation to time worked – and compare this value to the single minimum wage rate. Having a single minimum wage also simplifies the estimation of non-compliance through household surveys, as the single rate applies to all employees.

National minimum wages however only provide a clear reference for the lowest level of the wage scale. Complementary wage mechanisms, in particular collective bargaining, are in principle needed to determine the structure of wages of workers above the lowest level of pay. In countries with weak labour market institutions (i.e. low unionization rates and limited coverage of collective bargaining), simple minimum wage systems are sometimes perceived as insufficient to generate a fair distribution of wages.