OECD Defends Minimum Wage Increase to Mitigate the Impact of the Most Vulnerable

The OECD believes that, given the current rise in inflation, minimum wage increases should be encouraged to mitigate the impact on the most vulnerable families.

In a report on minimum wages during an inflationary period released this Friday, the Organization for Economic Co-operation and Development (OECD) emphasizes that minimum wage increases should be accompanied by other social benefits and mechanisms or bonuses to compensate for increased energy consumption. Prices.

“While heightened uncertainty and a significant slowdown in economic growth may indicate caution in raising minimum wages, there are opportunities for some countries to move beyond current minimum wage levels and at least partially shield the most vulnerable workers from rising prices,” it says. in the organization’s message. Report.

The OECD does not say which countries these are, but it does provide some clues.

One hint is to compare the minimum wage in relative terms – in each of the 30 countries of its 38 members that have a national minimum wage – with the median wage, i.e. the remuneration below which 50% of workers are paid. and above which the remaining 50% is paid.

The OECD average of the minimum wage is 55% of the median, although this figure varies greatly, with over 70% in Colombia (92%), Costa Rica (81%), Chile (72%) and Turkey (70%). ), to just 29% in the United States.

According to the OECD report, in Portugal the minimum wage is 66% of the median.

In Spain it is below average with 48%, but still lower than in other large European countries such as Germany (51%), the UK (57%) or France (61%).

The authors of the study also analyze the loss in purchasing power of the minimum wage in a dozen member countries between the end of 2020 and September 2022.

The fall in real terms is especially strong (more than 10%) in the US, where there was no revaluation in these seven quarters, and in the Netherlands.

The loss of purchasing power exceeds 5% in Spain (a 5.3% increase in the minimum wage in January did not compensate for the impact of inflation) and in Poland, while in Germany, Greece, and the UK it ranges from 0 to 5%. and Japan.

In contrast, the purchasing power of the minimum wage has been maintained in Australia and increased from 0 to 5% in Belgium, France and most notably Chile, where it tripled over the study period (3.2% in May 2021). , 12.8% in May 2022 and 5.3% in August 2022).

The OECD stresses that in the current context of record inflation over the past four decades, which “disproportionately” affects the less well-off, “the minimum wage could become an even more important tool to protect the living standards of low-wage workers.”

But he also points out that in addition to raising the minimum wage, other mechanisms should be used to protect the incomes of the most vulnerable, such as “specific and temporary” energy subsidies or “assistance for active workers.”