Chapter 8: Minimum wages for domestic workers

8.7 Economic factors in the domestic work sector

As for other sectors, some of the indicators on which the economic factors in the domestic work sector are based include: the percentage of employees affected by an increase in the minimum wage, the impact of this increase on the total wage bill, and the minimum to average wage ratio (see chapter 5).

In the case of domestic work, these indicators are defined by the employer’s capacity to pay. Identifying the capacity to pay requires identifying who the employer is (the household) and what proportion of the household budget can go to domestic work (see Technical Notes 1, 2 & 3).

Who is the employer?

In this sector, households are the employers. Instead of balance sheets with profit and loss statements, they have a household income. In this regard, the capacity of employers of domestic workers to pay is based on the household income (see Technical Notes 1, 2 & 3).

Figures 1 and 21 use data on household income from Namibia and the Philippines to show that domestic workers are disproportionately hired by the wealthiest families (see Technical Note 1).

It is also possible to calculate the percentage of household expenditure which is spent on the employment of domestic workers. This exercise is akin to calculating the total wage bill of an enterprise (see chapter 5). Figure 3 shows the percentage of household income spent on the employment of domestic workers in Costa Rica. While the percentage of household income spent on domestic work varies depending on the household’s income, on average, households spent about 4 per cent on domestic work.

In computing these analyses, it is also important to consider both wage costs and social contributions that employers must pay.

Data on household income is also used because labour productivity – as calculated from a country’s national accounts statistics – cannot be computed for the domestic work sector as it is for sectors like manufacturing.

In the manufacturing sector, for example, labour productivity is computed as the value of the output produced by the sector minus the value of the inputs used to produce the output.

Domestic work is not the only sector that faces this challenge: similar challenges also arise in the public sector.2 (see chapter 5). However, it is possible to use other indicators to assess the potential economic impact that an increase in the minimum wage for domestic workers might have. These include the percentage of domestic workers who would be affected by a particular minimum wage level (i.e. the percentage of domestic workers who currently earn less than the proposed level), and the impact this increase might have on average wages in the economy and on the average wage of the domestic work sector.

Ensuring affordability for employers

Concerns often arise about the ability of households to afford higher wages for domestic workers. There are often claims that many employers are minimum wage earners themselves. An excessive increase in the minimum wage could result in a loss of employment, a loss in the number of hours worked and/or an increase in undeclared hours and work. This is facilitated by high levels of informality in the sector and the low capacity of institutions to enforce compliance. Indeed, when setting a minimum wage, government and social partners must balance the needs of workers and their families, and the capacity of households to pay the minimum wage.

As the information we provide here shows, data on households can significantly help in identifying a suitable wage level in countries where minimum wages are set at sectoral level. Where there are concerns about affordability for lower-income households, whether in national or in sectoral minimum wage setting systems, several countries have established or promoted the establishment of child care and older people’s care centers that are usually more affordable for these households.

In countries like France and Belgium, domestic work is publicly subsidized to enable the payment of a minimum wage that meets the needs of workers and their families. In doing so, these countries have ensured protection for a typically vulnerable category of workers who provide essential services to hundreds of millions of homes around the world.3

Figure 1. Domestic worker employment in Namibia in 2012, by the disposable household income of the employer
Source: ILO commissioned study. Budlender, D. Wages and conditions of work of domestic workers in Namibia. 2013.

Figure 2. Domestic worker employment in the Philippines in 2009, by the disposable household income of the employer.

ILO, Domestic Workers in the Philippines: Profile and Working Conditions (Geneva, ILO).

Figure 3. Percentage of household expenditure spent on payment for domestic work services in Costa Rica in 2013, by decile
Note: Deciles divide a group into 10 parts. For example, in the figure, the first decile refers to the poorest 10% of households, while the 10th decile refers to the wealthiest 10% of households.
Source: ILO commissioned study. Trejos, J.D. The application of minimum wages in the domestic work sector in Costa Rica. 2015.

1 Data collected from household surveys do not always fully capture the size of the domestic work labour force or the hours they work because of high levels of undeclared work and hours.
2 Atkinson (2005). Atkinson Review: Final Report, Measurement of Government Output and Productivity for the National Accounts (New York, Palgrave MacMillan).
3 ILO (2010). Policy Brief 1: remuneration in domestic work, (Geneva, ILO).