Chapter 5: Setting and adjusting minimum wage levels

5.7 Combining short-term adjustments and a longer-term perspective

In periodic adjustments there is a tendency to concentrate on short- and medium-term indicators. A typical minimum wage adjustment normally will give much weight to a limited set of factors, such as price inflation or economic growth.

While this approach is natural, minimum wage fixing authorities should also bear in mind the longer-term perspective.

Some long-term objectives can be to reach a minimum wage level that is sufficient to cover the basic needs of a worker and his/her family (revised regularly to consider economic development); to ensure the minimum wage is effectively applied, with non-compliance reduced to a minimum; and to provide a comprehensive coverage of wage employees. It is also useful to contextualize a minimum wage policy within a broader economic perspective in which economic factors are affected by structural changes.

Have a medium-term strategy

Many countries have discovered that a gap exists between the legitimate needs of workers and their families and what the economy is capable of paying in terms of minimum wages. It will not be possible to eliminate this gap in a single minimum wage adjustment, at least not without adverse economic effects.

This suggests that there should be a medium- to long-term target for this policy – that is, closing this gap in successive, gradual adjustments. This approach has also been used for example in the domestic work sector (see chapter 8).

It is also important to monitor the effective application of the policy. Effective monitoring is crucial for the successful implementation of the minimum wage.

Therefore, the minimum wage fixing authorities should commission once in a while detailed reports detailing the inspections made with regard to minimum wages, cases of non-compliance detected, and action taken to correct this situation. It is important for the minimum wage fixing authorities and/or bodies to know if their decisions have a real impact on the ground.