Minimum wage compliance in Latin America
The weight of economic and institutional factors
Andrés MarinakisILO – Santiago
Minimum wages through time
• Minimum wages have been introduced in the region a long time ago;
• Through the decades, MWs have been suffering the impact of economic crises (high inflation, fiscal adjustments, competitive devaluations, etc.);
• Since early 2000, real MWs benefited from sustained economic growth;
• In practice, periodic adjustments follow certain inertia, forgetting the main objective of MWs.
Two main criteria to evaluate the effectiveness of MWs• Minimum wage and basic needs
– Minimum wage in relation to the poverty line
– Minimum wage in relation to the minimum living wage
• Minimum wage compliance– Estimate non-compliance on the basis of
household surveys
MW as a proportion of urban poverty line, 2011
Méx
ico
Boliv
ia (E
st. Pl
ur. d
e)
Repúb
lica D
omin
icana
Nicarag
ua
Urugu
ay
El Salv
ador
Brasil
Perú
Parag
uay
Colom
bia
Ecuad
or
Hondu
rasChi
le
Costa
Rica
Pana
má0
0.5
1
1.5
2
2.5
3
Note: poverty line per person, ECLAC
MW in relation to rural poverty line, 2011
Repúb
lica D
omin
icana
Méx
ico
El Salv
ador
Nicarag
ua
Boliv
ia (E
st. Pl
ur. d
e)
Urugu
ayBras
ilPe
rú
Hondu
ras
Pana
má
Parag
uay
Chile
Costa
Rica
Ecuad
or
Colom
bia
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Note: poverty line per person, ECLAC
Minimum living wage
Definition: income required for an average household (considering size and employed members) to reach the poverty line
poverty line x size of householdemployees per household
MW in relation to the minimum living wage, 2011
Méx
ico
Venez
uela
(Rep
. Bol
. de)
Repúb
lica D
omin
icana
Boliv
ia (E
st. Pl
ur. d
e)
Nicarag
ua
Urugu
ay
El Salv
ador
Perú
Brasil
Chile
Colom
bia
Parag
uay
Hondu
ras
Pana
má
Costa
Rica
Ecuad
or0
0.2
0.4
0.6
0.8
1
1.2
Total hogares 50 % más pobre
Non-compliance with the MW in private enterprises, 2011
Méx
ico
Boliv
iaBras
ilChi
le
Urugu
ay
Rep. D
omin
icana
Venez
uela
El Salv
ador
Pana
má
Costa
Rica Perú
Colom
bia
Ecuad
or
Parag
uay
Hondu
ras0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Preliminary conclusions on the implementation of MWs
• Despite the important improvement in real MWs of recent years, in many countries the MW is not enough to satisfy the basic needs of workers and their families;
• In some of the countries where the MW is close to satisfying the basic needs there is high level of non-compliance with the MW;
MW in relation to average wage and non-compliance, 2011
20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.00.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
MW/Average wage
Non
com
plia
nce
Minimum wage and non-compliance in urban sector, 2011
20 25 30 35 40 45 50 550
5
10
15
20
25
30
35
MW/Average wage
Non
com
plia
nce
Uruguay Chile
Costa Rica
Peru
%
%
Non-compliance: ¿blame the level or the institutions?• Discussions on MWs usually focus on its level,
forgetting the daily management;• While the level is very important for the MW
to be effective, there is no optimal level, but a reasonable range (avoiding extremes);
• Within that reasonable level, the quality of the institutions in place to enforce the MW will determine the final result in compliance.
Institutions required to promote MW enforcement• General knowledge of rights and obligations• MW as a target of inspection• Labour inspectors trained, with resources• Inspections as a % of establishments• Fines, periodic adjustment, workers affected• Effective application of fines• Length of the whole procedure• Develop adequate administrative registers
A focus on the rural sector
• The impact of MWs in rural areas is limited by lower % of wage employees;
• Non-compliance rates in rural areas is always higher that in urban areas;
• Very weak presence of labour inspection in rural areas;
• Lower unionization rates and collective bargaining.
Final remarks• Most countries LA countries present a gap
between MWs and basic needs and some show high levels of non-compliance;
• Both features weaken impact on poverty;• Gap with basic needs should be progressively
reduced, especially in times of economic growth;• Level of MW is a determinant factor for
compliance;• But institutions set up for promoting and
guaranteeing enforcement are also crucial.
Final remarks• Periodic adjustments tend to concentrate the
bigger efforts of all parties. However, it seems necessary to review the effectiveness of the actual implementation;
• Evidence shows that countries have to review if MWs are satisfying the needs of workers and their families and if their structure is still adequate;
• In addition, they have to revise all the layers of the inspective action.
