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2 Nov 2015    Working Papers


Two Worlds of Minimum Wage: A Critical Look on Literature and a New Research Agenda

r4d Working Paper 2015/11 by Rüya Gökhan Koçer

ABSTRACT: Under the conditions of advanced capitalism minimum wage is the statutory lowest boundary for remuneration that is directly relevant for a small group of people who are not protected by the other components of the system. In developmental context, however firms do not exactly comply with minimum wage but it is still capable of acting like a lighthouse positively affecting all wages across both formal and informal sectors even without being effectively enforced by an authority. Consequently, majority of population is influenced by minimum wage dynamics. Therefore while under the conditions of advanced capitalism the name and nature of minimum wage coincide, in developmental context this is no longer the case. Although its name remains the same its nature is different: it is neither minimum nor wage but a signal that may become the reference price for the fair value of labor across entire economy. This suggest that minimum wage and people’s sense of fairness may be linked.  The research has been overlooking these peculiarities and analyzing minimum wage in developmental context on the basis of assumption derived from the conditions of advanced capitalism. This approach makes us overlook interesting dynamics triggered by minimum wage across ‘developing’ countries. I propose a new approach to minimum wage that would recognize its different nature in developmental context and would scrutinize its role in legitimation dynamics and its relationship with social cost of labor. This approach would open new avenues for research and prevent us from asking wrong questions.

Two Worlds of Minimum Wage: A Critical Look on Literature and a New Research Agenda