Chapter 2: How many different minimum wage rates should there be

2.3 Reforming minimum wage systems

Simple and complex minimum wage systems are not good or bad per se. Their evaluation will depend on how effective they are in practice and if they serve their original purpose. Complexity may work well is some countries – usually those with strong social partners and public institutions – and less so in other countries.

Minimum wage systems often evolve and change over time. Some minimum wage systems have become more complex, difficult to manage and less effective as a basic floor of protection. These considerations have sometimes led countries to simplify their minimum wage system.

Before embarking on this path however, policy-makers should carefully consider the potential consequences. Whatever its limitations, an existing minimum wage system may play an important wage-setting role for a significant proportion of the labour force. Abruptly dismantling a complex system - to replace it by a more simple system - may produce an unwanted vacuum, especially when collective bargaining is weak.

Therefore, a gradual approach to change may be less unsettling. A central element of reform process is consultation with the social partners – not only are they the most knowledgeable about these issues, but they are also the key actors in implementing the changes. Their involvement in the process of change not only increases their ownership of the result, but also helps lead to a more effective minimum wage system.

The following examples illustrate the evolution of some minimum wage systems, in one direction or another.