the literature reviewed here is fairly homogeneous in terms of research design. In the future, new insights could be gained by research innovations such as those proposed by Freeman (2005) and Heckman (2007).<sup>4</sup>

# **Minimum wages**

Most countries have some form of minimum wage, although the institutional arrangements may vary. Although minimum wages are most often established through laws or regulations, in some countries, minimum wages are set through a bargaining process involving employers and unions. A single national rate is most common, but many countries have sub-national, regional, industrial, or occupational rates. In some countries, sub-minimum wages exist for certain groups, such as teenagers or trainees. Some types of workers may be completely excluded; agricultural and domestic labor are common examples. Moreover, minimum wage rules are not designed to cover the self-employed or family enterprise workers. In developing countries with large informal sectors, the reach of minimum wage regulations may be quite limited even among wage employees because of non-compliance.

Minimum wages are controversial, reflecting Freeman’s (1993) institutionalist-distortionist divide. The institutionalist perspective provides the rationale for minimum wage policies: to counter exploitation by providing all workers with a “fair” wage and, more generally, serving as an anti-poverty policy (Eyraud and Saget 2008). The distortionist perspective emphasizes the negative employment effects when the minimum wage prices low-productivity workers out of the (formal) labor market.

The level at which the minimum wage is set is critical and can vary considerably, especially in developing countries. The ILO (2013) recently estimated the ratio between the minimum wage and the median wage of workers covered by minimum wages for 11 developing countries and found that this measure ranges from above 1.0 in South Africa, Philippines, and Indonesia to approximately 0.4 in Mali, Vietnam, and Mexico. In developed countries, in contrast, the ratio tends to be lower and has less cross-country variation – from approximately 0.35 to 0.60.

# _Impacts on employment_

The impact on employment has been the overwhelming focus of minimum wage studies. Research conducted through the 1980s was primarily based on U.S. times-series data and typically found negative employment impacts. The consensus emerging from that research was that the elasticity of teenage employment with respect to the minimum was in the -0.1 to -0.3 range (i.e., a 10% increase in the minimum wage reduced teenage employment by 1%-3%) (Brown et al _._ 1983). However, beginning in the early 1990s, a wave of studies led to serious questioning of this view. This “new minimum wage research” used new data sources and research designs that were typically based on exploiting the widening differentials between U.S. state minimum wages. The most influential of these studies were the Card-Krueger-Katz investigations, which found some positive employment effects of minimum wages.<sup>5</sup> More recent research that extends the analysis of state differentials also disputes the earlier consensus, concluding that modest increases in the minimum wage have no detectable impact on teenage employment in the U.S. (Dube et al _._ 2010; Allegretto et al _._ 2011).

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