Minimum Wage Enforcement in the Developing World

"Drawing on evidence from developing country studies, this paper considers several key issues. We discuss the impact of minimum wages in the developing world based on a selection of recent studies and highlight non-compliance with minimum wage laws as an important research and policy issue. We then briefly review the existing empirical evidence on non-compliance, which reveals relatively high levels of violation in the cases for which data are available. Reflecting on this evidence we have suggested a new Index of Violation to measure absolute and relative levels of minimum wage violation. Arguably such a measure is a potentially powerful policy tool for guiding where enforcement resources need to be channelled. Yet we also understand very little about the various factors which impact on violation of the minimum wage. We identify individual, institutional, firm and local labour market characteristics as a composite set of dependent variables, which may explain non-compliance with the law. While the evidence is scant, it does support the notion that these factors are critical as ‘inputs’ in understanding the ‘output’ of minimum wage violation. Based on the assembled evidence, a comparison of policy approaches regarding enforcement are discussed – with a view to suggesting an optimal policy intervention matrix for minimum wage enforcement in developing countries."