Living On Minimum Wage

In growing Asian economies, are minimum wage policies protecting vulnerable workers?

Sharing Growth

Asia's economic development is unprecented in human history. The region has gone from accounting for 16.8% of the world's economy in 1960, to 45.4% in 2015, according to data compiled by the World Economics Journal. And despite the recent economic slowdown, it remains the fastest growing region. Given this unparalleled growth, labor advocates are fighting to ensure the most vulnerable workers share in the wealth.

In Asia, this fight has focused on the minimum wage. But setting the minimum wage optimally is a difficult problem: set it too low, and it is ineffective; set it too high, and risk inflation, job losses, and encouraging informal labor where protections are nonexistent.

Is Asia's rising tide lifting all boats? And are Asian countries doing enough to ensure the well-being and dignity of their most vulnerable workers?

Asia banks on the minimum wage

Asian countries are economically and culturally diverse. The continent comprises advanced and developing economies ranging from wealthy Singapore to impoverished Nepal. Yet the continent does have some shared traits.

According to economist Gemma Corrigan of the World Economic Forum, social protections are a weak point for Asian countries. While education and health spending is on par with other regions, on other forms of social spending for vulnerable populations, "it's the second lowest region globally, just slightly ahead of sub-saharan Africa. So it's actually quite striking.”

Maarten Van Klaveren of the Amsterdam Institute for Advanced Labour Studies also pointed to the continent’s lack of collective bargaining. With the exception of China and Vietnam, trade union membership sits at between two and five percent for most Asian countries. European countries have trade union densities of around 15%. “[In Asia] trade unions are rather weak.”

Lacking strong social protections and trade unions, Asia's governments and labor activists have instead focused on the minimum wage as a tool to protect vulnerable workers. But even when minimum wages are high enough for workers' basic needs, the continent’s minimum wage policies have other problems.

According to Van Klaveren, many Asian countries like Indonesia, India and China don’t have just one minimum wage, but thousands or tens of thousands for different sectors and provinces, making it difficult for workers to know how much they should be paid. “That's less so in other continents. All over the world, 80 to 85% of countries which have a minimum wage have a single minimum wage or a few rates."

Minimum wage policies also only apply to formal workers, but Asia has a high rate of informal work. "Take India [where] only five or six percent is formally employed in a formal company,” said Van Klaveren. Pakistan and Thailand are also estimated to have informality rates of 74% and 63%, respectively. Indonesia's informality rate is estimated at nearly 60%.

International Commitments

The United Nations' International Labour Organization (ILO) promotes social justice, human and labor rights by issuing conventions--legally binding international treaties--which are ratified by member countries. Explore which countries have ratified the ILO's minimum wage and core conventions.

Note: Andorra, Bhutan, Liechtenstein, Micronesia, Monaco, Nauru, and North Korea are not members of the ILO. The 1998 Declaration on Fundamental Principles and Rights at Work makes the ILO's core conventions binding even for countries that have not ratified them.

Source: International Labour Organization

Select country:

Asia
Outside Asia

Conventions relating to minimum wage ratified by this country:

C026 Minimum Wage-Fixing Machinery

Signatories of this technical convention, adopted in 1928 in Geneva, promise to implement or maintain minimum wage rate setting mechanisms for workers employed in sectors of manufacture or commerce where wages are not regulated by collective bargaining or where wages are extremely low. Among other provisions, signatories promise to enforce and monitor compliance, inform workers of their rights, and provide annual updates to the ILO.

Countries where convention in force shown on map
C099 Minimum Wage Fixing Machinery (Agriculture)

Signatories of this technical convention, adopted in 1951 in Geneva, promise to implement or maintain minimum wage rate setting mechanisms for workers employed in agricultural or related undertakings, where appropriate. Among other provisions, signatories promise to enforce and monitor compliance, inform workers of their rights, and provide annual updates to the ILO.

Countries where convention in force shown on map
C131 Minimum Wage Fixing

This technical convention, adopted in 1970 in Geneva, goes further than C026 in obliging signatories to implement or maintain minimum wage rate setting mechanisms for all workers, where appropriate, and establish penal or other sanctions for noncompliance. Determination of which groups are covered is to be made in agreement or after full consultation with worker and employer groups. Among other provisions, signatories promise, during initial and subsequent reports to the ILO, to justify why certain groups are not covered.

Countries where convention in force shown on map

ILO core conventions ratified by this country:

C087 Freedom of Association and Protection of the Right to Organise

This fundamental convention, adopted in 1948 in San Francisco, among other provisions, obliges member states to allow workers and employers to establish or join organizations of their choosing, without prior authorization or interference. These workers' or employers' organizations should be free to draw up their constitutions and rules, to elect their representatives in full freedom, to establish and join federations, and to affiliate with international organizations.

Countries where convention in force shown on map
C098 Right to Organise and Collective Bargaining

This fundamental convention, adopted in 1949 in Geneva, among other provisions, obliges member states to protect workers from anti-union discrimination, including making employment conditional on non-participation in union activities and dismissal or prejudice due to union participation. Protections accorded to armed forces and police, however, may be determined by national laws or regulations.

Countries where convention in force shown on map
C029 Forced Labour

This fundamental convention, adopted in 1930 in Geneva, among other provisions, obliges member states to suppress the use of forced or compulsory labor in all its forms within the shortest possible period, where forced or compulsory labor is taken to mean all work or service exacted from any person under the menace of any penalty and for which the said person has not offered voluntarily. Exceptions include compulsary military service, normal civil obligations, and work exacted due to conviction in a court of law.

Countries where convention in force shown on map
C105 Abolition of Forced Labour

This fundamental convention, adopted in 1957 in Geneva, goes further than C029 in, among other provisions, obliging member states to suppress and not to make use of any form of forced or compulsory labour as a means of political coercion or education or as a punishment for holding or expressing political views, for purposes of economic development, as a means of labor discipline, or for reasons of racial, social, national or religious discrimination.

Countries where convention in force shown on map
C138 Minimum Age Convention

This fundamental convention, adopted in 1973 in Geneva, among other provisions, obliges member states to pursue policies ensuring the effective abolition of child labor. Member states must set a minimum employment age higher than the age of completion of compulsory schooling, and no less than 15 years of age (or 14 in some exceptional cases). The minimum age for employment that may jeopardise the health, safety or morals of young persons should also not be less than 18 years in most cases.

Countries where convention in force shown on map
C182 Worst Forms of Child Labour

This fundamental convention, adopted in 1973 in Geneva, among other provisions, obliges member states to urgently prohibit and eliminate the worst forms of child labor for all persons under the age of 18. This includes all forms of slavery or similar practices, prostitution and pornography, production and trafficking of drugs and work likely to harm the health, safety or morals of children. Member states must design and implement plans of action to prevent these practices and provide assistance for the rescue and rehabilitation of affected children.

Countries where convention in force shown on map
C100 Equal Remuneration Convention

This fundamental convention, adopted in 1951 in Geneva, among other provisions, obliges member states to apply the principle of equal remuneration for men and women workers for work of equal value through national laws or regulations, legally established or recognized machinery for wage determination, collective bargaining, or a combination of these means. Member states must also promote the objective appraisal of jobs where useful to the application of this principle.

Countries where convention in force shown on map
C111 Discrimination (Employment and Occupation)

This fundamental convention, adopted in 1958 in Geneva, among other provisions, obliges member states to declare and pursue policies promoting equality of opportunity in employment and occupation with a view to eliminating discrimination based on race, color, sex, religion, political opinion, national extraction or social origin. Member states should pursue this goal through cooperation with employers' and workers' organisations, legislative and policy means, and educational programs. Action taken should be reported in members' annual reports to the ILO.

Countries where convention in force shown on map

Source: International Labour Organization

Not a cure-all

According to Van Klaveren, it is a settled question among most economists that minimum wage policies are a good idea. “If you run through all the literature […] there is no good position to be against minimum wages as such. [There are] some American economists who are rather against minimum wages at all, but I would say this is a very small minority these days.”

Relative Minimum Wages Compared

Minimum wage as a percentage of mean national wage is a metric which allows comparison of wage rates accross different levels of economic development. Current wage data is not available for many Asian countries. A selection of non-Asian countries is included for reference.

	Data year	Minimum wage as a percentage of mean national wage
Indonesia	2011	65%
Colombia	2015	57
France	2015	50
Vietnam	2012	44
South Korea	2015	38
Japan	2015	35
China	2012	34
United States	2015	25
Russia	2012	17

Sources: OECD (Japan, South Korea, France, United States); "Minimum Wages, Collective Bargaining and Economic Development in Asia and Europe" by Van Klaveren et al. (China, Indonesia, Vietnam, Russia)

There is a level at which minimum wage may threaten employment, Van Klaveren conceded. "Above 60% of the average national wage, then you may come into a danger zone." He pointed to some provinces in Indonesia, where due to political interference, minimum wage levels have risen to unsustainable levels.

According to Corrigan, most Asian countries have plenty of room to manoeuver before reaching those levels. She called for incremental increases "in line with productive potential."

World Bank Senior Economist Ximena Del Carpio warned against overloading minimum wage policies--a tool intended to correct distortions in the labor market where wages are kept artificially low--with the responsibility of reducing poverty and inequality. "In some sense, it's like giving the wrong medicine for an illness," she said in an interview conducted by the World Bank. She believes there are other, better tools to accomplish these goals.

Van Klaveren said that besides the minimum wage, more work has to be done in bolstering and creating legal frameworks for collective bargaining, and in providing a "social protection floor", which, according to the United Nations International Labor Organization (ILO), are policies that ensure that those in need have access to essential health care and basic income security.

Good news and bad

Real wages in Asia have followed increases in productivity closer than in some other regions, particularly Europe. “Wage shares [the portion of the national income paid to workers] in Europe especially, but also in Latin America, do not do very well,” said Van Klaveren.

Some Asian countries fare better than others, he said. “China doesn't do too bad in this respect. Same holds for Vietnam.”

Corrigan also pointed to southeast Asia, where minimum wage increases have been on par or slightly below productivity. “Malaysia, Thailand, and Philippines have had quite strong gains in reducing inequality.”

“In South Asia, particulary in countries like India or Sri Lanka, it's been the opposite, wage growth has been declining,” she said.

Van Klaveren also singled out India for criticism. “Notably, India is lagging behind in setting clear standards for minimum wage.”

On the other end of the economic spectrum, Singapore, Asia’s wealthiest country, has no minimum wage. Van Klaveren also called out South Korea, where the wage share has been declining for years, and Japan, where the minimum wage has stagnated. “It was a nice minimum wage some 20-30 years ago, but now I think Japan could do much better.” Hong Kong's minimum wage has also lagged behind inflation in recent years.

Living in Asia's advanced economies is no guarantee of strong wage and social protections. In fact, it may be in some of the continent's richest countries where labor laws have the most room for improvement.

Comments (4) Closed

Sameer

Apr 12, 2017 08:16pm

The poor dont live. They bear and then die in some civil hospital without basic facilities.

Recommend 0

yussouf m mir

Apr 13, 2017 02:24am

MARKET FOLLOWS SUPPLY/DEMAND WAGES RISE/FALL

Apr 13, 2017 04:33am

A fantastic article and I believe key is to have a place of own or at affordable rates. Rest will be alright if you are bit disciplined.

Fazal Karim

Apr 13, 2017 05:51am

Finance Minister of a country while presenting annual budget should also provide budget of a person who is getting minimum wage.