Chapter 5: Setting and adjusting minimum wage levels

5.5 Ratio of minimum to average wages

One useful and widely used statistical indicator is the ratio of the minimum wage to the mean or the median wage. As mean wages are affected by extreme values, median1 wages provide a better point of reference, especially in countries that have high wage inequality. This indicator shows the level of the minimum wage relative to that of the "average worker", and – to the extent that average wages reflect at least in part average productivity levels – also provides information on economic factors.

The first figure below shows that in developed economies, the minimum wage ranges usually from 35 to 60 per cent of the median wage.The second figure shows that in developing countries, the ratio of minimum to median wages is frequently higher. This could be due to the fact that in developing countries, the median wage earner is often relatively low-paid. Thus, considerations related to the needs of workers and their families sometimes lead to higher minimum wage ratios than in developed economies.

While such indicators can be useful in evaluating minimum wage levels, they should be complemented by more refined country-specific analysis. Country-level ratios should also be calculated at a disaggregated level by sector, sex, and region in order to identify the groups or regions most likely to be affected by the minimum wage.

It should also be noted that these ratios can be misleading when they are interpreted too literally. The figure below shows for example that minimum wages are relatively high in France, which may suggests that it also has higher effects on labour costs than in other countries. To some extent, however, the cost of minimum wages in France are mitigated by reduced social security contributions for employers who hire minimum wage workers.  

Figure 1. Ratio of minimum wage to median wages in selected developed countries (2014)
Source: OECD (2015), "Earnings: Minimum wages relative to median wages", OECD Employment and Labour Market Statistics (database).

Figure 2. Ratio of minimum wage to median wages in selected developing countries
Note: Analysis based on data from household and labour force surveys.
Source: Rani, U.; Belser, P.; Oelz, M.; and S. Ranjbar. 2013. “Minimum wage coverage and compliance in developing countries” in International Labour Review, Vol. 152, No. 3-4.

1 Median wages refer to the middle wage. For example, in a country with five people who earned monthly wages equal to 5, 6, 7, 9, and 15, the median would be 7