Post-Corporatist Equality Policy: The Role of Minimum Wages
A common feature of measures such as minimum wages, anti-discrimination policies, and equal pay for men and women is that they focus on groups (and inequalities) which have not been the main focus of established corporatist policies. Much of the time, these policies are orthogonal to corporatist policy-making: they are initiated and consolidated in other venues. However, minimum wage-setting is an important case where the policy spaces overlap: unions and employers are generally closely engaged in the process, increasingly so as low pay has become a more salient issue.
Establishing a minimum wage with national coverage requires the exercise of the coercive authority of the state, but this is done in a variety of ways. Powers can be delegated, effectively giving unions and employer organisations more regulatory capacity than they would have without statutory backing. Or the government of the day can keep power close to the political centre, opening up the possibility that political parties may take different positions on minimum wage policy, and claim electoral credit for particular minimum wage outcomes. This study addresses the question of why there is more delegation in some countries than others, develops hypotheses about the different forms that delegation takes, and derives predictions about the effect of delegation arrangements on the level of the minimum wage.
The existing literature on minimum wage-setting predicts that delegation results in higher minimum wages, other things being equal. This is partly a reflection of the US case, where minimum wage-setting is not delegated and the minimum wage has suffered prolonged periods of drift. Countries with indexation (‘automatic government’ or delegation to a rule) tend to have higher minimum wages. The results of delegation to social partners (unions and employers) have recently been examined by Boeri (2012), who argues that, where the government dominates the minimum wage-fixing process, minimum wage will be lower than when the social partners dominate. The principal driver of this hypothesis is that governments internalise the cost of unemployment, and therefore weight the prospect of employment losses from a high minimum wage more heavily than unions or employers.
Boeri’s hypothesis is reasonably well-supported by data from 68 countries which have minimum wages. Many of these countries are not good cases for examining the recent turns in minimum wage policy: they have long-standing state-dominated wage-fixing arrangements, decision-making entrenched by convention, and limited enforcement of wage regulations. Of more interest in the context of rising inequality in developed countries are recent innovations in minimum wage policy. The UK is such a case (the National Minimum Wage was introduced in 1998) in which both the motives for and outcomes of delegation can be studied in depth, thanks to an extensive political debate and documentation of the determinants of minimum wage decisions. Germany is another example of recent innovation (2015): it is too recent to say much about how the level of the minimum wage will evolve, but the lead-up to the new policy is revealing about the relationship between minimum wage-setting and corporatist institutions. The paper concentrates on developments in these two countries, drawing where appropriate on comparisons with countries that have not introduced a minimum wage despite some pressure to do so (Denmark, Sweden) and other countries with long-established minimum wages that have recently changed their institutional arrangements (France, Australia).
The relationship between the minimum wage and social security, or between predistribution and redistribution, is a central issue in mapping the configuration of interests around the minimum wage. Higher minimum wages do not have much effect on household income inequality. For decades, the standard prescription was that poverty was better addressed by redistribution than predistribution: taxes and benefits could be adjusted to take account of household circumstances, and so were much more efficiently targeted on poverty reduction than the minimum wage. The significance of these claims has been challenged as redistributive capacity has waned. Fiscal effects create interests in higher minimum wages from unexpected quarters within the state.
Theoretical insights about delegation based on transaction costs (Epstein and O’Halloran 1999) can be applied to minimum wage-fixing institutions and contrasted with the predictions that would be made on the basis of corporatist traditions. The transaction cost approach highlights the possible influence of structures of party competition and political decision-making institutions on delegation decisions. These variables can provide an explanation of why the government might want to enlist the social partners in minimum wage-setting, and how their incentives and preferences are likely to differ from those applying in corporatist policy-making settings.
The paper concludes by returning to the question of whether and when social partner participation in policy-making reduces inequality, or when by contrast it may promote insider-outsider divides. Recent developments in minimum wage policy-making suggest a rather nuanced answer to this question. The answer depends on the exact structure of delegation, which provides the framework for social partner participation. That structure will reflect political variables, such as party systems, as well as labour market and social security institutions.
References:
Boeri, T. (2012) 'Setting the minimum wage', Labour Economics 19(3): 281-290.
Epstein, D. and O'Halloran, S. (1999) Delegating Powers, Cambridge: Cambridge University Press.
Thelen, K. (2012) 'Varieties of Capitalism: Trajectories of Liberalization and the New Politics of Social Solidarity', Annual Review of Political Science 15: 137-159.