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

2.1 The logic behind different minimum wage systems

Minimum wage systems range from very simple systems, which determine a unique rate applied to the whole country, to very complex systems that determine many different rates depending on the sector of activity, occupation, geographical region and/or enterprise size, among other alternatives. Each approach has a particular logic behind it, reflecting the concerns that policy-makers had when the policy was designed.

National and regional rates

A national minimum wage – that has only one rate applicable to all the workers of a country – is based on the idea that every worker has equal rights to the same wage protection. A single minimum wage is also linked to the idea of satisfying the needs of workers and their families, which will be the same irrespective of the sector of activity or the size of the enterprise in which they work.

However, the cost of goods and services can differ substantially between regions within the same country. Some countries may also have regional differences in the labour market, with vibrant economies and low unemployment in some parts of the country, and less dynamic areas with higher unemployment in other parts.

Some large countries, such as Brazil, the Russian Federation, or the United States combine a national minimum wage floor with the possibility to set higher regional rates.

Sectoral and occupational differences

Other minimum wage systems are structured with the objective of protecting workers through a combination of collective agreements and statutory minimum wages in low-paying sectors or activities where no collective bargaining takes place. This usually results in a system of minimum wages by sector of activity and sometimes occupations, with many specific rates, taking into account sector-specific economic factors. This is the case for example in India with a large number of different rates for “scheduled” occupations, as well as in South Africa. In some countries, these systems are complemented by a general rate applicable to non-specified activities, such as in Costa Rica.

One challenge with complex systems is that the principle of equal pay for work of equal value should be respected (see section 2.4). For example, in cases where sectoral and/or occupational minimum wages are set lower than the national minimum wage, this could be in violation of the principles underlying the Discrimination (Employment and Occupation) Convention, 1958 (No. 111).

Other differences

Some systems also differentiate minimum wages for different groups of the population, or depending on the size of enterprises.

Box 1.
The rationale underlying each type of minimum wage system

National. Every worker has the right to the same minimum wage and workers and their families all have the same needs, independently of the sector of work.

Regional. There are significant regional differences in the cost of living, economic development, and labour market situation within a same country.

Sector. Some sectors of activity have higher average productivity and "capacity to pay" than other sectors, and can afford higher minimum wages. 

Occupation. Certain occupations may be more skilled than others and workers in these occupations have a higher level of productivity.

Enterprise size
. Smaller enterprises may have lower productivity and subsequently a lower average capacity to pay.

Population. A high general minimum wages may act as a barrier to the employment of the members of some groups such as young workers, trainees, or workers with disabilities.