Abstract

As South Africa debates the introduction of a statutory minimum wage, this article reviews comparative evidence on the economic and social effects of minimum wage laws. Minimum wages can be found in countries at all levels of development and have recently experienced a revival after a period of relative decline under the influence of neoliberal economic policies during the 1980s and 1990s. Minimum wage laws have persisted because they are highly effective in addressing in-work poverty while encouraging technological and organisational improvements by firms. They also help to maintain the tax base and limit the extent of public expenditure on fiscal transfers aimed at enabling households to access a living income. In the case of developing countries, they can help bridge the middle income gap by underpinning demand for locally produced goods and services and by supporting industrial upgrading. Experience suggests that minimum wages need to be set at a relatively high level, closer to 60% than 40% of average wages, if they are to induce significant social and economic upgrading, but that getting to this level requires not just the marshalling of evidence but the building of consensus on the part of key actors in government and industry and across civil society. Comparative evidence also points to the importance of minimum wages acting as a complement to, and not a substitute for, sector-level collective bargaining. These points are explored in detail through an analysis of the evolution of the British minimum wage system, and some implications are drawn for the South African debate.