The Impact of the Regulation of Low Wages on Inequality and Labour-Market Adjustment: A Comparative Analysis

Abstract

In all continental European countries there exist non-market mechanisms that determine or `regulate` wage rates for the low-paid. We consider the experience of three countries that have national minimum wages France, Belgium, and the Netherlands - and three where low wage rates are determined through widespread collective bargaining - Germany, Italy, and Denmark. We find that overall there is less inequality (both wage and income) and less poverty than in the United Kingdom and the United States, where low wages are less regulated. Furthermore, patterns of labour-market adjustment - employment, unemployment, and gross job flows - vary greatly, suggesting that there is no one-to-one mapping between the presence of mechanisms to regulate low wages and labour-market performance. Furthermore, wage shares have been falling since the early 1980s. It is therefore difficult to attribute high and persistent rates of unemployment found in certain countries to the existence of mechanisms to `regulate` low wages.