What is a minimum wage?

1.1 Definition and purpose

This definition refers to the binding nature of minimum wages, regardless of the method of fixing them.
Minimum wages can be set by statute, decision of a competent authority, a wage board, a wage council, or
by industrial or labour courts or tribunals. Minimum wages can also be set by giving the force of law to
provisions of collective agreements.

The purpose of minimum wages is to protect workers against unduly low pay. They help ensure a just and
equitable share of the fruits of progress to all, and a minimum living wage to all who are employed and in
need of such protection. Minimum wages can also be one element of a policy to overcome poverty and
reduce inequality, including those between men and women, by promoting the right to equal remuneration
for work of equal value.

Minimum wage systems should not be seen or used in isolation, but should be designed in a way to
supplement and reinforce other social and employment policies. Several types of measures can be used to
tackle income and labour market inequality, including pro-employment policies, social transfers, and
creating an enabling environment for sustainable enterprises.

The purpose of a minimum wage, which sets a floor, should also be distinguished from collective
bargaining, which can be used to set wages above an existing floor. Figure 1 shows a hypothetical wage
distribution with a "minimum wage zone" and a "collective bargaining zone" which can be used to
establish minimum standards and to set wages above an existing floor.

Figure 2 illustrates that the effectiveness of minimum wages depends on many factors, including the
extent to which they afford protection to all workers in an employment relationship, including women,
and youth and migrant workers, regardless of their contractual arrangements, as well as all industries and
occupations in the economy (coverage); whether they are set and adjusted at an adequate level that covers
the needs of workers and their families, while taking into account economic factors (level); and whether
employers comply with minimum wage regulations
(compliance).
Figure 1: The distribution of wages (hypothetical wage distribution of a population of 56 wage
earners

Figure 2. Main dimensions of effective minimum wages

The figure below shows that more than 90 per cent of ILO member States have one or more minimum
wages set through legislation or binding collective agreements.

This does not mean that in all these countries minimum wages cover a majority of workers or that they are
regularly adjusted. It shows, however, that minimum wages are used by a large majority of countries in
the world. In many of these countries, policy debates focus not so much on whether to have a minimum
wage, but on how to make one work effectively.
Figure 1. Proportion of ILO member States with and without a minimum wage

Source: ILO estimate.

Note: As of September 2015, the ILO had 186 member States. Only countries where the minimum wage
applied to all or part of the private sector were counted as having a minimum wage. This includes
minimum wages set through collective agreements that are given the force of law.
Statistics can be broken down by region.

All European countries have either a statutory or a collectively bargained minimum wage covering at least
part of the private sector. In the Americas and the Caribbean, there are only very few exceptions, such as
Suriname. There are a few more exceptions in Asia, including Singapore and Brunei, and also in Africa
such as Ethiopia, Eritrea or Somalia. Among Arab states, no minimum wage exists in Qatar, Bahrain or
the United Arab Emirates.
 Figure 2. Proportion of countries with a minimum wage, by region, 2014 or latest available

Source: ILO estimate

Statistics can be broken down by countries’ level of gross domestic product (GDP) per capita. The
proportion of countries with minimum wages is slightly higher in high-income and middle-income groups
than in low-income groups.

Figure 3. Proportion of countries with a minimum wage, by income group, 2014 or latest
available
 1.3. A short history
Initially, minimum wages covered relatively few categories of workers and sought to protect those
considered to be especially vulnerable. New Zealand was the first country to implement a minimum
wage in 1894, followed by the Australian state of Victoria in 1896, and the United Kingdom in
1909. Frequently, minimum wages were considered as a temporary measure, to be phased out once
wage bargaining between social partners would be established. Early forms of minimum wages
sometimes targeted their protection at home workers or women (see box 1. below)

1.
The origins of minimum wages in the United States

in the United States, and particularly about the working conditions of women and children. The idea of a minimum wage
was supported both by the American Association for Labor Legislation and the National Consumers’
League, a group led by women, whose board of directors endorsed the notion of a legal minimum wage
for women in 1909. Minimum wages were first introduced at state level and in most cases applied only
to women and children. State minimum wages were regularly challenged in courts, and in 1923 the US
Supreme Court declared minimum wages to be unconstitutional. In 1938, following an initiative by
President Roosevelt, the US Congress adopted the Fair Labor Standards Act, which instituted a federal
minimum wage. Its constitutionality was almost immediately challenged in courts, but was eventually
validated by the Supreme Court in 1941.

Source: Neumark D.; Wascher, W.. 2008. Minimum Wages. (Cambridge, MIT Press)

Expanding coverage after the Second World War, and a halt in the 1980s
After the Second World War, the number of countries with minimum wages expanded. Newly
independent countries such as India (1948) and Pakistan (1961) were among those adopting
minimum wages. Francophone African countries adopted the French model of a general minimum
wage (SMIG) with a lower rate for agriculture (SMAG), while Anglophone African countries
adopted the tradition of sectoral wage boards.

The legal coverage of minimum wages was progressively expanded as it was increasingly felt that
all workers, as a matter of right, should receive protection against unduly low wages. Nationally
applied minimum wages appeared in the Netherlands (1969), France (1970) and Spain (1980). In the
United States, coverage expanded from about 20 per cent of the workforce in the early years to
nearly 80 per cent in 19702 . Coverage also expanded in countries with sectoral minimum rates.
States in India, for example, gradually expanded the number of sectors and occupations “scheduled”
for minimum wage coverage.

The economic and intellectual contexts of the 1970s and 1980s brought this expansion to a halt in
some countries. The United Kingdom dismantled its wage councils in the 1980s.
The return of minimum wages – the 1990s and beyond
In recent years, minimum wage systems have been established or strengthened in many countries to
address working poverty and inequality. The United Kingdom introduced a new statutory minimum
wage with national coverage in 1999. Since the early 1990s eight other members of the Organisation
for Economic Co-operation and Development (OECD) have adopted a statutory minimum wage,
including the Czech Republic, the Slovak Republic, Poland, Estonia, Slovenia, Ireland, Israel and
most recently Germany.3 Most OECD countries without a statutory minimum wage have legal
floors set through collective agreements, such as in Denmark, Finland, Norway or Switzerland. As a
result, minimum wages exist in all European countries.

Many developing and emerging economies also established or strengthened minimum wages. China
adopted a minimum wage in 1994 and strengthened it in 2004; South Africa established a system of
minimum wages after the end of apartheid in 1997; Brazil re-activated its minimum wage policy in
2005; the Russian Federation complemented its national minimum wage with regional floors in
2007; and Malaysia adopted a national minimum wage in 2013, followed by Myanmar and the Lao
People’s Democratic Republic in 2015, and by Macao (China) in 2016. In Africa, the most recent
country to introduce a national minimum wage was Cape Verde in 2014.