Chapter 5: Setting and adjusting minimum wage levels

5.1 What is a balanced and evidence-based approach?

A balanced approach is one that takes into account, on the one hand, the needs of workers and their families and, on the other, economic factors. Such an approach combines both social and economic factors in order to find a level that benefits workers and society without prompting negative effects. A balanced approach is necessary because a minimum wage is a redistributive tool that has both benefits and costs.

If set too low, minimum wages will have little effect in protecting workers and their families against unduly low pay or poverty. If set too high, minimum wages will be poorly complied with and/or have adverse employment effects.

The balanced approach in ILO Convention No.131

The balanced approach is emphasized in the Minimum Wage Fixing Convention, 1970 (No. 131), which in Article 3 states that:

The elements to be taken into consideration in determining the level of minimum wages shall, so far as possible and appropriate in relation to national practice and conditions, include—
(a) the needs of workers and their families, taking into account the general level of wages in the country, the cost of living, social security benefits, and the relative living standards of other social groups;

(b) economic factors, including the requirements of economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment.

It is understood that these criteria are not exhaustive.

While economic factors may constrain increases in minimum wages, in other instances they may provide an opportunity to increase minimum wages beyond the minimum survival needs of workers and their families.

How to ensure that minimum wage fixing is evidence-based?

While minimum wage fixing is always the result of a political process, including in principle the full consultation of social partners, setting the minimum wage should be evidence-based. In this respect, it is useful to identify objective criteria. The importance of the collection of statistics and other data for analytical studies is emphasized in Recommendation No. 135 and the Labour Statistics Convention, 1985 (No. 160).

When governments and social partners agree on the basic criteria that they intend to use for the minimum wage adjustment, discussions can occur within a common framework.
The availability of data also allows for the effects of the minimum wage rate to be carefully monitored over time.

These effects, measured by a monitoring process, can subsequently feed into the next round of decisions that policy-makers take to uprate the minimum wage.

Data used for this purpose should be timely, comprehensive, and disaggregated by sex. In order to assess the effect of the minimum wage, or simulate the effects an uprate might have on the economy, it is necessary to have data which are as representative of the economy as possible.