PARIS - In most OECD countries, inflation has reached levels not seen in the last four decades, hitting the poorest households disproportionately. Despite the recent increases, minimum wages are struggling to keep up with inflation.

As the cost of living crisis continues, there is a need to share the cost of high energy prices fairly between governments, companies & workers. But low-income workers & households need to be protected. This policy brief discusses the functioning of minimum wages across OECD countries, their role in preserving the purchasing power of low-paid workers as well as their interactions with tax-benefit systems.

Inflation has reached levels not seen in the last four decades in most OECD countries, hitting disproportionally the most vulnerable, low-income households. This policy brief discusses the functioning of minimum wages across OECD countries, and their role in the current high inflation context. The role of working-age benefits is the focus of another policy brief (OECD, 2022[1])while a third one focuses on the challenges for the pension systems (OECD, 2022[2].

Key findings

- In most OECD countries, inflation has reached levels not seen in the last four decades, hitting disproportionally the poorest households. Despite the recent increases, minimum wages are struggling to keep up with inflation.

- Although high uncertainty and a significant slowdown in economic growth may suggest caution in raising minimum wages, several countries have margins to go beyond the current minimum wage levels and protect at least partially the most vulnerable workers from rising prices.While accounting for the different national institutional settings and uprating mechanisms, it is important that statutory minimum wages adjust regularly.

- Over and above the minimum wage, collective agreements (even tripartite ones at national level) can help companies and workers find tailored and ad hoc solutions to fairly share the cost of inflation and avoid a wage-price spiral, for instance by limiting wage increases in exchange for lump-sums and/or non-wage benefits.

- Effective co-ordination of minimum wage adjustments with the other tax and benefits provisions, including the extraordinary measures taken to cushion the effect of the crisis, is key to ensure that increases in the headline value of the minimum wage translate into higher take-home pay while limiting the rise in labour costs for employers and keeping the cost for public budgets in check. In some countries, the statutory minimum wage, formally or informally, is used as a reference for the adjustment of other policy tools, such as social minima, income tax brackets and benefit income eligibility thresholds with implications that can go well beyond minimum wage earners.

To download the report, visit: https://www.oecd.org/employment/Minimum-wages-in-times-of-rising-inflation.pdf?utm_source=Adestra&utm_medium=email&utm_content=Minimum%20wage&utm_campaign=ELS%20Newsletter%20December%202022&utm_term=els