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Setting the Minimum Wage


Tito Boeri


Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)


IZA Discussion Paper No. 4335

Abstract:     
The process leading to the setting of the minimum wage so far has been fairly overlooked by economists. This paper suggests that this is a serious limitation as the setting regime contributes to explain cross-country variation in the fine-tuning of the minimum wage, hence in the way in which the trade-off between reducing poverty among working people and shutting down low productivity jobs is addressed. There are two common ways of setting national minimum wages: they are either government legislated or are the outcome of collective bargaining agreements, which are extended erga omnes to all workers. We develop a simple model relating the level of the minimum wage to the setting regime. Next, we exploit a new data set on minimum wages in 66 countries that had already or introduced a minimum wage in the period 1981-2005 to test the implications of the model. We find that a Government legislated minimum wage is lower than a wage floor set within collective agreements. This effect survives to several robustness checks and hints at a causal relation between the setting regime and the level of the minimum wage.

Number of Pages in PDF File: 30

Keywords: minimum wages, collective bargaining, statutory minimum

JEL Classification: J31, J41, J42

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Date posted: August 4, 2009  

Suggested Citation

Boeri, Tito, Setting the Minimum Wage. IZA Discussion Paper No. 4335. Available at SSRN: http://ssrn.com/abstract=1442650

Contact Information

Tito Boeri (Contact Author)
Bocconi University - Department of Economics ( email )
Via Gobbi 5
Milan, 20136
Italy
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
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