Monitoring the effects of minimum wages

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Monitoring the effects of minimum wages is a key element of an evidence-based system. Findings from rigorous impact assessment studies should find their way back to Governments and social partners, and inform subsequent rounds of adjustment or changes to the system.

Governments and social partners should have access to studies on the effects of minimum wages on variables such as wages, employment, informality, hours of work, gender pay gaps, income inequality or poverty. Studies should also monitor effects on prices and on the different elements of aggregate demand, including household consumption, investment or the competitiveness of exports.  

Different and credible methodologies should be used to ensure that conclusions are not driven by biases in the choice of methodologies. 

If they are effective, minimum wages should raise the wages of some groups of workers. When women are over-represented among low-paid workers, the minimum wage should also reduce the gender pay gap.
But the overall wage effect depends on the level and legal coverage of the minimum, the degree of compliance, and the "spillover" effects on the wages of workers who are paid above the minimum.

Spillover effects arise when, as a result of a higher minimum wage, workers with more seniority or skills also demand higher wages, either through collective or individual bargaining. Spillovers can also occur because changes in the minimum wage can have far-reaching effects on pay in the public sector.

More controversial is the debate on the employment effects, which have been found to vary across countries and studies. A recent World Bank overview concluded that “although the range of estimates from the literature varies considerably, the emerging trend in the literature is that the effects of minimum wages on employment are usually small or insignificant (and in some cases positive).”1 But differences in findings across countries and studies point towards the importance of country-specific programmes for monitoring the employment effects of minimum wages, particularly on vulnerable workers and enterprises.

1 Kuddo, A., Robalino, D., and M. Weber, 2015. Balancing Regulations to Promote Jobs: From employment contracts to unemployment benefits, World Bank Group, Washington, D.C.,