International Journal of Manpower

Minimum Wages and Low Pay: An ILO Perspective

Zafar Shaheed

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Zafar Shaheed, (1994),"Minimum Wages and Low Pay: An ILO Perspective", International Journal of Manpower, Vol. 15 Iss
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Gary S. Fields, (1994),"The Unemployment Effects of Minimum Wages", International Journal of Manpower, Vol. 15 Iss 2/3
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Minimum Wages and Low

Pay: An ILO Perspective

Minimum Wages
and Low Pay:
ILO Perspective

Zafar Shaheed

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International Labour Office, Geneva, Switzerland

49

Introduction
The theme of the workshop was the analysis of low pay and the effects of
minimum wages. This evokes three major issues. First, the incidence, causes
and effects of low pay in different parts of the world, in different sections of the
population, in different occupations. Second, the methods of minimum wagefixing (MWF) and its socio-economic effects. Third, prospects for reducing the
incidence of low pay and enhancing an appropriate role for MWF. What the
International Labour Organization (ILO) has to say on these issues is not
necessarily contained in one document or one single message, but is as complex
as the subject matter.
Many of the other papers presented at the workshop addressed the first issue.
This article addresses the last two issues. First, it briefly describes the various
instruments of the International Labour Organization which establish guiding
standards for national policy on remuneration matters. Second, it mentions
some of the issues that need to be studied in considering the effects of minimum
wages. It ends by discussing some of the broader issues relating to labour
standards, low pay and competitiveness.
International Labour Standards
The most important international labour standards are those embodied in the
Conventions and Recommendations adopted by the ILO[1]. As of 1993, the ILO
has adopted 174 Conventions and 181 Recommendations. Otherwise known as
International Labour Standards (ILS), these Conventions and Recommendations
are adopted by the International Labour Conference at its annual sessions. They
are the result of discussions among the ILOs tripartite constituency of
governments and representatives of employers and workers from each member
state.
Previously presented to the International Workshop on the Analysis of Low Pay and the Effects
of Minimum Wages, 1993, as a paper entitled Minimum Wages and Low Pay: An ILO
Perspective.
The author is Head, Remuneration Section, ILO. The responsibility for opinions expressed rests
solely with him. He gratefully acknowledges comments on an earlier draft provided by the
following ILO colleagues: J. Burle de Figueiredo, A.V. Jose, G. van Liemt, L. Picard,
W. Sengenberger, W.R. Simpson and E. Yemin.
1993, International Labour Organization, Geneva.

International Journal of Manpower,

Vol. 15 No. 2/3, 1994, pp. 49-61.
MCB University Press,
0143-7720

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50

Conventions, once ratified voluntarily by states, create binding obligations

under international law, which are subject to supervision by the ILO.
Governments have to inform the ILO through regular reports how they are
giving effect both in law and in practice to the ratified Conventions. Copies of
these reports must also be provided to representatives of employers and
workers in the country, who may make their own comments on the
Governments reports. These reports and relevant comments thereon are
critically examined through a two-stage process by the ILO, designed to help
member states improve their capacity and willingness to give effect to the
provisions and principles of the Conventions. The regular supervisory system is
supplemented by complaints mechanisms, which allow the examination of nonfulfilment of obligations under ratified Conventions. Furthermore, the
Committee on Freedom of Association, a tripartite committee of the ILO
Governing Body, can examine complaints in this area even in the absence of the
ratification of the relevant Conventions.
ILO policy, as regards remuneration, is covered by three sets of international
labour standards, supplemented by a few others not specifically dedicated to
pay but which affect it. The first of these relates to minimum wage fixing. The
first standards of this kind adopted by the ILO were the Minimum Wage-Fixing
Convention, 1928 (No. 26) and Recommendation No. 30, which apply to
manufacturing and commerce. These were supplemented by the Minimum
Wage-Fixing Convention (Agriculture), 151 (No. 99) and Recommendation No.
89, applying virtually the same requirements to work in agriculture. In 1970, the
ILO adopted the Minimum Wage-Fixing Convention No. 131 and
Recommendation No. 135, with special reference to developing countries. This
first set of standards on minimum wages will be further discussed below.
The second major set of ILO standards affecting pay is the Protection of
Wages Convention (No. 95) and Recommendation (No. 85), adopted in 1949,
dealing with the basic right of workers to be paid for their labour and, in
particular, the mechanisms by which they are paid. These standards have
recently been supplemented by the Protection of Workers Claims (Employers
Insolvency) Convention, 1992 (No. 173) and Recommendation No. 180.
The third major set of standards affecting pay are those on the prevention of
discrimination in employment. The first adopted are the Equal Remuneration
Convention (No. 100) and Recommendation (No. 90), 1951, providing for the
application of equal pay between men and women for work of equal value.
Equally important in this area are the Discrimination (Employment and
Occupation) Convention (No. 111) and Recommendation (No. 111), 1958, which
promote the abolition of all discriminatory distinctions (based on race, religion,
national extraction, political opinion, gender) in providing equal opportunity
and treatment in employment and occupation. The final set of instruments
which also affect pay are those governing freedom of association and the right
to negotiation between employers and workers and their respective
representatives and organizations with respect to pay and conditions of

employment. These and the first above-mentioned set of ILO instruments are Minimum Wages
considered in greater detail below.
and Low Pay:
ILO instruments relating to minimum wage-fixing do not mandate the level ILO Perspective
of minimum wages as such, but rather the procedures for arriving at this
level[2]. Under Convention No. 26, machinery is to be established to fix
minimum wages for

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workers employed in the trades or parts of trades (and in particular the home working trades)
in which no arrangement exists for the effective regulation of wages by collective agreement
or otherwise and the wages are exceptionally low.

It is provided that employers and workers concerned shall be associated in the

operation of the machinery, implying that they must at least be consulted as to
the amount of the minimum wages fixed. Implicit is the underlying notion that,
in the absence of satisfactory methods of pay determination, statutory
intervention becomes a substitute for collective bargaining. Also implicit is the
hope that, in time, adequate collective bargaining machinery will develop in
most of the different economic sectors so that the statutory intervention can be
withdrawn in these sectors.
Similar provisions are made in the Minimum Wage-fixing Machinery
(Agriculture) Convention, 1951 (No. 99) for work in agriculture. The more recent
Minimum Wage-Fixing Convention, 1970 (No. 131), concerning minimum wagefixing with special reference to developing countries, is more ambitious. It
requires each ratifying country to establish a national system of minimum
wages which covers all wage earners whose terms of employment are such
that coverage would be appropriate. This is both more comprehensive and less
precise than the provisions of the previous instruments. There is no reference to
the absence of adequate arrangements for wage determination through
collective bargaining constituting a sine qua non for MWF machinery. At the
same time, however, Article 2 (2) of the Convention provides that the freedom of
collective bargaining shall be fully respected.
Convention No. 131 and its accompanying Recommendation No. 135 are also
more explicit in addressing the question of the level at which the minimum
wages should be set. Article 3 of the Convention requires that:
The elements to be taken into consideration in determining the level of minimum wages shall,
so far as possible and appropriate in relation to national practice and needs, include
(a) the needs of the workers and their families, taking into account the general level of wages
in the country, the cost of living, social security benefits, and the relative living standards of
other social groups;
(b) economic factors, including the requirements of economic development, levels of
productivity and the desirability of attaining and maintaining a high level of employment.

The accompanying Recommendation No. 135 makes it clear in the first Article
that MWF should constitute one element in a policy designed to overcome
poverty Convention No. 131 and Recommendation No. 135 provide
important elements missing from the earlier instruments, requiring ratifying
states to broaden the scope of coverage of minimum wages, to fix and adjust

51

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minimum wages on a realistic, factual and analytical basis, to ensure the

enforcement of minimum wages and to promote MWF as part of a national
programme to combat low pay and poverty.
Finally, let us turn to a set of ILO instruments which do not even mention the
word wages or remuneration, but have an important impact on pay. The
Freedom of Association and Protection of the Right to Organise Convention,
1948 (No. 87) and the Right to Organise and Collective Bargaining Convention,
1949 (No. 98), the principal instruments on freedom of association adopted by
the ILO, do not deal with wage regulation directly. In interpreting them, it has
been held that the right to negotiate freely with employers and their
organizations with respect to wages and conditions of employment constitutes
a basic aspect of freedom of association, and, consequently, trade unions should
be able to exercise this right. The adoption of unduly restrictive measures runs
counter to the principle that workers and employers organizations should have
the right to organize their activities, as guaranteed by Convention No. 87.
Restrictive measures are also regarded as incompatible with the provision of
Convention No. 98, which requires that
measures appropriate to national conditions shall be taken, where necessary, to encourage and
promote the full development and utilisation of machinery for voluntary negotiation between
employers or employers organisations and workers organisations, with a view to the
regulation of terms and conditions of employment by means of collective agreements.

Convention No. 87 applies to workers in both private and public sectors, without
distinction, and accordingly also to public servants. However, Convention No. 98
does not deal with the position of public servants engaged in the administration
of the state. Their position is covered by the Labour Relations (Public Servants)
Convention (No. 151) and Recommendation (No. 159) of 1978. The commitment
of the ILO to voluntary collective bargaining as the preferred means of
determining wages and other terms and conditions of employment is evident as
well in the more recent adoption of the Collective Bargaining Convention
(No. 154) and Recommendation (No. 163), 1981, which prescribe various means
of implementing the general principle of the promotion of collective bargaining
already contained in Convention No. 98.
Consequently, the ILO supervisory machinery has repeatedly criticized
efforts by governments to intervene in restricted wage bargaining, noting that a
permanent requirement for prior approval of collective agreements by the
public authorities, or a permanent regulation either imposing or prohibiting the
inclusion of certain provisions in wage agreements, is inconsistent with ILO
standards. Any such restrictions on wage negotiations, conceivable as part of
economic stabilization policies, should be imposed as an exceptional, temporary
measure, without exceeding a reasonable period, and should be accompanied
by economic safeguards to protect workers living standards. Instead of
constraints, the ILO supervisory machinery has emphasized Government
efforts to persuade the parties to collective bargaining to have regard

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voluntarily to considerations relating to the economic and social policy of the Minimum Wages
Government and the safeguarding of the general interest[3].
and Low Pay:
Finally, within this final set of standards mention should be made of the ILO Perspective
Labour Inspection Convention, 1947 (No. 81) and Recommendation (No. 81),
which provide for a national system of labour inspection to ensure that
employers respect legal provisions relating to terms and conditions of work. In
53
particular view of the problems of enforcement of statutory minimum wages,
labour inspection is a key supportive mechanism in this respect.
The foregoing relates to minimum wage fixing and wage determination as
provided for in ILO standards, and indicates amply that the ILO assumes a
combination of laissez-faire liberalism with state intervention in terms of
determining the institutional parameters within which wages are fixed. In other
words, it is expected that, as institutions develop, as workers and employers
become better organized and able to negotiate pay, there will be less need for
Government intervention. However, there are continuing areas of employment
where pay is such as to demand Government intervention, and these are the
areas that are of primary interest in the context of this article.
Effects of Minimum Wages
What are the socio-economic effects of statutory MWF? Many papers presented
at the meeting considered in detail this much debated question. This section
simply introduces some of the issues involved in addressing this question.
According to one view, particularly in periods of economic difficulty when
activity in the formal sector is contracting, the existence of minimum wages
exacerbates the adverse impact on employment. As demand declines, there is no
possibility of employees keeping their jobs through adjustment of wage levels.
Instead, they are dismissed and swell the ranks of the unemployed or the
informal sector, which in turn forces wages down in this sector where minimum
wages cannot be enforced. According to this view, those who remain employed
in the formal sector thus protect their wages at the cost of depressing the living
standards of informal sector workers, many of whom are already poor. Thus,
for the economy as a whole, wage dispersion and inequality increase. However,
within the formal sector, wage differentials between the skilled and unskilled
are reduced and also thereby the incentive to accumulate human capital.
It is, however, easier to make assumptions in this area than to present hard
evidence to support the assumptions. To engender the harmful consequences
postulated by this traditional view, minimum wage levels would have to meet
the following set of conditions:
exceed the wage levels that market forces would generate and thus
represent a binding constraint on employers;
apply to a large proportion of the workforce; and/or
have a significant and positive impact on all wage levels in the formal
sector; and
have a negative impact on employment in the formal sector.

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As regards the first point, there are some cases where minimum wages may
have been relatively high in the past and a potential cause of labour market
distortions. In some developing countries, high expectations in the post-colonial
euphoria sometimes led to governments according too ambitious a role to MWF.
However, over the past ten to 20 years, minimum wages have decreased in many
developing countries. In the more extreme cases, where countries are suffering
from wide discrepancies between official and free exchange rates, minimum
wage payments are all but worthless.
In regard to the second point mentioned above, the proportion of the
workforce directly affected by the MW varies from country to country and
depends partly on the basic role which governments assign to MWF. Most
critics of MWs do not differentiate between these different roles and their
associated economic consequences[4]. It is therefore necessary to consider these
roles before proceeding further. Roles of MWF can be distinguished according
to whether the machinery seeks to cover particular industries or occupations, or
more broadly to all workers in general or all those within broadly defined
sectors. Whether they are industry minimum wage systems or general
minimum wage systems, they can affect a greater or lesser proportion of the
workforce, and have a more or less ambitious role in terms of affecting general
wage levels.
Under industry minimum wages, if the role is to use MWF to protect a
relatively small number of workers in low-paying industries who occupy an
especially vulnerable position in the labour market the original role of the
Wages Council system of the United Kingdom Government intervention is
confined, so to speak, to the bare minimum. It could be argued that this
approach is thereby subject to less criticism from those who advocate policies
based on market forces. (However, this has not prevented the Government in
the United Kingdom from abolishing the Wages Councils as of 1 September
1993.)
If the role is to fix wages for particular industries and/or groups of workers,
going beyond the low paid and unorganized, there is greater likelihood in
principle of according a more ambitious role for MWF. Underlying this second
role is the concept of ensuring fair wages, of establishing a common rule for
individual industries or occupations in order to promote the application of equal
pay for equal work and to reduce areas of industrial conflict. There is as well, at
least implicit in this approach, the desire to isolate wages from excessive
competitive pressures, the rationale being that, while employers should be free
to compete in terms of price, design, quality of product or service, it is unfair for
competition to be based on a bidding-down of workers wages. (We shall return
to this concept in the following section, in discussing the question of
competitive advantage and its determinants.)
There are in practice many problems with this approach to MWF,
particularly prevalent in a number of developing countries influenced by the
UK Wages Councils system. The more selective the coverage, the greater the
difficulty to explain why some are covered and others are not. The more

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comprehensive and detailed the occupational distinctions, the greater are the Minimum Wages
administrative burdens. This has meant that, in many countries, even though a
and Low Pay:
comprehensive approach has been the stated objective, relatively few rates have ILO Perspective
been established and regularly adjusted. Therefore, despite the potentially farreaching role of this fair wages approach, in practice this form of MWF by
industry has tended not to have as great an effect as might be imagined.
55
Under systems providing for general minimum wages, one role can be to
establish a general floor for the wage structure. This safety-net minimum,
while generally applicable, frequently has direct relevance to only a minority of
workers, as many are paid higher rates. This approach coincides with the view
that a general minimum can make a contribution to reducing poverty only if it
directly affects a relatively small proportion of the workforce. If a large
proportion of workers received increases in money wages from the general
minimum, it is believed that subsequent inflation would lead to no improvement
in real wages, and/or that employment would be adversely affected.
The second role for general minimum wages is as an instrument of
macroeconomic policy, altering general wage levels and structures in line with
broad national objectives of economic stabilization, growth and income
distribution. This role assumes that the level and changes in minimum wages
affect a large proportion of workers. It is seen as providing Government with
opportunities to apply more effective control over wage movements without
adversely affecting resource utilization and allocation. However, this requires
the wage-fixing authorities to deal with a number of complex and difficult
national economic and social issues simultaneously. The economic effects of
changes in wages affecting a large proportion of the workforce, particularly the
indirect effects, are uncertain and difficult to anticipate. This is especially so if
much economic activity is strongly influenced by the terms of trade and
changes at the international level, over which the individual economy has no
control. This helps to explain in large part why countries have tended to move
away from this ambitious role of general minimum wages.
To resume, therefore, it is important to bear in mind the different roles that
MWF seeks to achieve when considering the proportion of the labour force
being affected. However, the accuracy of the claims made about the distorting
effects of minimum wages will depend not only on the direct coverage of
minimum wages, but also on their indirect impact on all wages. For example, if
the minimum wage is increased it might be presumed that all those below the
new minimum will either receive wage increases or become unemployed. There
is also the possibility that other workers will receive increases in their wages in
order to maintain differentials or perhaps because the announcement of an
increase in minimum wages has become the occasion on which to grant
increases to others.
The effects of minimum wages on wages actually paid are usually far from
obvious, and can only be established after much detailed empirical analysis.
The actual impact will depend greatly on the level of minimum wages relative
to the previously existing pattern of wages. To estimate the costs of raising

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wages which were originally below the minimum wage requires detailed
information on the distribution of wages, i.e. on the numbers of employees
receiving various different rates of pay. This type of information is much less
readily available than data on average wage rates or earnings figures.
Once established, the interpretation of the effects of minimum wages on
average wages or income distribution will depend on political judgements. If it
is shown that increasing minimum wages leads to a widespread increase in
wages throughout the economy, it has to be decided whether this is desirable or
acceptable. However, this will not be decided in isolation; the expected
employment effects in particular will also be taken into account.
The arguments against minimum wages usually assume a simplistic
negative relationship between rising minimum wage levels and declining
employment. However, the effects differ from country to country and from
industry to industry, the short-term differing from the longer-term effects, and
there are many factors other than the minimum wage affecting employment.
Employers offer jobs not only on the basis of pay, but also other factors such as
product market conditions, credit rates, fiscal incentives, size of firms, sector of
activity, etc.
It is clear therefore that, depending on the interpretation of the effects of
MWF, the latter process can have a lesser or greater determining influence on
low pay. It is important in this context to consider briefly the ILOs stance on
poverty and possible approaches for moving away from it. This entails inter
alia a shifting of the paradigm regarding minimum wages from a negative
mode (discussed in the above section) to a more positive mode.
Labour Standards, Low Pay and Competitiveness
The 26th session of the International Labour Conference, meeting in
Philadelphia in 1944, adopted a declaration concerning the aims and purposes
of the ILO (subsequently known as the Philadelphia Declaration). Among
these fundamental principles is the affirmation that poverty anywhere
constitutes a danger to prosperity everywhere. Earlier, the preamble of the
Constitution of the ILO, established in 1919 and appearing as Chapter XIII of the
Versailles Peace Treaty, had already affirmed that the failure of any nation to
adopt humane conditions of labour is an obstacle in the way of other nations
which desire to improve the conditions in their own countries. In the
Constitution, specific reference is made to the obligations of the members of the
international community to observe a certain number of standards in the social
field.
One important reason for the standards adopted subsequently by the ILO
was to constitute, through a resulting harmonization of labour and social
conditions, a sort of code of loyal competition between countries. With time,
in view of the growing differences in rates of economic growth and development
between countries, this role has tended to become more one of helping to
establish a minimum floor for these conditions. However, labour standards in
ILO Conventions do not try to deny any comparative advantage in trade. It can

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be argued rather that they implicitly distinguish between illegitimate Minimum Wages
advantages gained from practices such as forced labour or bans on unions and
and Low Pay:
the legitimate advantages gained from the terms and conditions of labour ILO Perspective
intrinsic to underdevelopment. Thus the ILO has never set a uniform, real
minimum wage (the seafarers wage excepted, mentioned in[2]).
Since the question of relative low pay in developing countries is one of the
57
factors inciting demands from certain quarters for linking international trade
(or, more specifically, the conditions for market entry and/or trade preferences)
to the observance of fair labour standards, this issue needs to be considered
here. The underlying concern of the proposals for linking fair labour standards
to international trade, stated simply, is to ensure that international trade
produces social as well as economic benefits, and that it contributes to the
improvement of labour standards in exporting countries. It might be argued
that the objectives should be broader, namely those of ensuring that any such
linkage should also contribute to an improvement in the adherence of importing
countries to these same labour standards, which in turn would make their
arguments for a social clause stronger vis--vis exporting countries.
Let us hypothetically consider for a moment how labour standards could be
related to the rules of international trade. This would vary with the purposes of
the exercise. If it were a purely protectionist measure, exporters might, for
instance, be asked to produce proof of having paid a certain minimum wage
before any goods are imported. The end result of such an approach could be a
reduction in trade and a rise in prices in the markets of industrialized countries,
and ultimately of consumer prices. It would also lead to great distortions in
wage structures in low-wage exporting countries[5].
If the goal of linking fair labour standards to international trade is that of
raising the terms and conditions of work in developing countries the only
valid one from an ILO perspective any intervention ostensibly aimed at
dealing with the inequitable treatment of workers in specific sectors of the
economy is likely to have only a limited impact. The magnitude of the
unprotected, unorganized workers in developing countries up to 80 per cent of
the total labour force in some of these countries will make it virtually
impossible for their governments to enforce a highly preferential labour policy
for the exporting sector without improving conditions in other sectors.
Therefore, any attempt to link fair labour standards with trade will need to be
supported by massive parallel action to improve the conditions of the
unprotected workers.
While it is self-evident that wage levels in developing countries cannot be
lifted quickly, it is essential to work towards this goal. For this it is important to
guarantee basic worker rights, to ensure the institutional prerequisites of fair
wage determination, especially through the application of the principles of the
right to organize and negotiate terms and conditions of employment, as
provided for in ILO Conventions No. 87 and No. 98.
In considering the concerns of the industrialized countries, i.e. of North
America and Western Europe, about unfair competition from developing

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countries and the notion of their relative economic disadvantages, a number of

issues need to be borne in mind. First, any relative decline in economic
advantages they have experienced is vis--vis a relatively limited number of
countries, initially Japan and since then mainly the rapidly developing countries
of Asia. This leaves out much of the developing world. Second, while the
worldwide share in economic activity of the United States and Western Europe
has gone down, by no means does this signify a decline in all sectors; producers
which have moved up-market to high value-added activities have managed to
retain their competitive advantage. To the extent that the crises experienced by
certain sectors are internally rather than externally determined, this situation
reflects the need for developing new industrial policies in these countries,
emphasizing the development of new production and marketing methods and
newer technologies to maintain their growth. Third, the creation of greater
wealth and enhancement of competitive advantage in certain sectors in some
rapidly growing countries, based initially in part on lower labour costs, leads in
turn to the generation of social demands for better pensions and health care, a
safer and cleaner living and working environment, longer holidays, and a
greater say, through a collective voice, in determining the terms and
conditions of employment. Investment in such amenities and procedures results
in an increase in social and public costs in these countries, reducing these areas
as a source of competitive advantage and forcing producers in these countries to
seek and exploit other sources of advantage such as quality, flexibility and
productivity in production. Therefore it has been argued that governments in
countries characterized by relative slow growth and high labour costs, in order
to continue to offer high living standards to their citizens and good labour
conditions to their workers, must aim for a concentration on high value-added
activities, and provide the appropriate supportive macro-economic conditions,
good infrastructure and excellent educational and training facilities[6].
The above references to varying sources of comparative advantage should by
no means be taken as any endorsement of a position that one could or should
abstain from improving standards in the developing world because this would
destroy the latters cost advantage. In the highly controversial and politicized
debate concerning the economic effects of labour standards and regulations, the
pessimists argue that such standards and regulations emanating from them
are bad for growth and productivity, that workers are discouraged from labour
discipline and resist technological change, and that, for employers, they imply
additional labour costs, which limit flexibility and induce inefficient
recruitment and dismissal decisions. The optimists argue that such regulation
has positive economic effects on productivity by inducing employment security,
through which higher returns can be achieved from both training and from
workers commitment to enterprise performance. Indeed, it could be argued that
lengthening labour contracts and maintaining high costs of dismissals could
induce employers to make higher investments in training, and lead to greater
labour-management co-operation[7].

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These arguments are far from conclusive. At this point, it is all the more Minimum Wages
important to emphasize the need for further work based on concrete research,
and Low Pay:
in order to ascertain the economic effects of labour standards and regulations on ILO Perspective
employment and productivity.
Underlying this debate is the need for a clear understanding of the sources of
competitive advantage. In the long term, it can be argued that comparative
59
advantage will increasingly depend on product competition, requiring an
emphasis on research and development and product design and quality. In a
market environment where competition is based on process and product
development, a low-pay strategy cutting the price of labour and designed to
maintain profitability of increasingly obsolete equipment and product lines can
bring only temporary respite. There is a limit to wages reduction, even in the
most segmented markets, but no limits to cost reductions based on
improvements in technology and in work organization. In an open economy, at
some point the product becomes so obsolete it cannot be sold at any price. For
firms trapped in this downward spiral, expectations become increasingly shortterm and survival is dependent on further cost cutting, signalling competitive
failure.
Orthodox economists argue that low pay results from low productivity.
However, the causation can also work the other way around. For example, when
sweat-shop conditions, safety and health hazards and stress associated with the
absence of any effective floor of employment rights or shop-floor representation
are directly detrimental to the health and wellbeing of workers, it can be argued
that low pay and other related terms and conditions of employment lead to
lower labour productivity. This situation has been described as an
undervaluation of labour, fixing the value of labour below the real value of
labour input[8].
Ultimately, innovation and dynamism cannot be derived from making labour
resources cheaper, but only from making labour more productive. While
enlightened firms may spontaneously follow this practice, commonly agreed
and shared standards are required to spread the productive impact of good
labour use on a wider scale. In a sense, the function of labour standards is to
promote constructive and deter destructive competition, ensuring that
competition does not follow a downward spiral[9]. It has been argued that, if
there is no floor to wages or other terms and conditions of employment, this will
reinforce a natural tendency to lower the wage rate and force people to offer
their labour at decreasing prices. This tendency is clearly in evidence in many
developing countries characterized by excess supply of labour, and also in
certain economic sectors in industrialized countries facing technologicallyinduced displacement of labour. Effective labour standards, while maintaining
the price of labour, will help to provide greater incentives for firms to improve
the way they function, their technology, their product design and marketing,
etc.
Labour standards have to ensure that competition, both nationally and
internationally, is not primarily based on cheap labour but rather on the pursuit

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60

of better products, work processes and market opportunities. To achieve this,

the downward competitive forces have to be stemmed by way of a national
general minimum floor to wages and other terms and conditions of
employment, and the assurance of compliance. Simultaneously, labour
standards can help to promote constructive competition. This has to be based
on co-operation, involving the exchange of skills and know-how at the level of
the workplace. But this is likely only if workers feel that they will not
experience individual disadvantages and insecurity as a result of their cooperation. Similarly, firms will co-operate only to the extent that they can
assume that other firms will not undermine them through undercutting labour
costs, or violating labour laws, or evading social security obligations[9].
In the light of the preceding discussion, there is therefore an important role
for MWF. Indeed, in countries where collective bargaining and tripartite
consultations are weak, the tripartite nature of its procedures can be beneficial
for such institutionalization. At its best, MWF is the art of reconciling and
balancing, through a concerted tripartite process, fundamental goals of national
development which are often conflicting: the objective of raising the income of
the lowest paid with that of sustainable economic growth and employment
generation. The difficulty of reaching and maintaining this delicate balance
often emanates not from any flaws in the principles of MWF, but rather in the
lack of political and administrative support provided to these systems. Such
obstacles include, particularly in developing countries but also more generally,
inadequate participation by employers and workers representatives on MW
boards, lack of appropriate data and technical expertise at the boards disposal,
insufficient periodic adjustments of minimum rates and, above all, poor
enforcement machinery. A far greater commitment is required for MWF to fulfil
its purposes, particularly from employers and governments, within a
framework providing greater commitment as a whole to maintaining and
enhancing labour standards, in the interests not only of social justice, but also
of economic development.
Notes and References
1. The following is based largely on Starr, G. and Swepston, L., Remuneration and
International Labour Standards, in Bulletin of Comparative Labour Relations (Deventer),
No. 19, 1990, pp. 37-60.
2. There is one exception to this rule the Wages, Hours of Work and Manning (Sea)
Convention (Revised), 1958 (No. 109), which provides that basic wages for seafarers shall
not be less than a specified amount.
3. See Pankert, A., Government Influence on Wage Bargaining: The Limits Set by
International Labour Standards, International Labour Review, Vol. 122 No. 5, SeptemberOctober 1983.
4. The most comprehensive discussion of the issues involved in minimum wage regulation is
in Starr, G., Minimum Wage Fixing; An International Review of Practices and Problems,
ILO, Geneva, 1981. For a recent survey of the law and practice relating to minimum wages,
see ILO, Minimum Wages: Wage-fixing Machinery, Application and Supervision, ILO,
Geneva, 1993.

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5. Edgren, G., Fair Labour Standards and Trade Liberalisation, International Labour
Review, ILO, Geneva, Vol. 118 No. 5, September-October 1979, pp. 523-36.
6. See van Liemt, G., Economic Globalisation: Labour Options and Business Strategies in
High Labour Cost Countries, International Labour Review, Vol. 131 Nos. 4-5, ILO, Geneva,
1992, pp. 453-70.
7. Rodgers, G.B. and Figueiredo, J.B., Internal IILS report on a seminar on Labour
Institutions in the Context of Economic Transformation in Latin America, PREALC,
Santiago, May 1993.
8. See Wilkinson, F., Equality, Efficiency and Economic Progress: The Case for Universally
Applied Equitable Standards for Wages and Conditions of Work, in Sengenberger, W. and
Campbell, D. (Eds),Creating Economic Opportunities: The Role of Labour Standards and
Labour Institutions in Industrial Restructuring (forthcoming). The arguments in this and
the preceding paragraph are borrowed from Wilkinson.
9. Sengenberger, W., The Role of Labour Market Regulation in Industrial Restructuring, in
Standing, G. and Tokman, V. (Eds), Towards Social Adjustment, Geneva, 1991, pp. 236-50.
The arguments in this and the following paragraph are borrowed from Sengenberger.

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