IMF attacks on minimum wages are misguided and destructive

The International Monetary Fund (IMF) continues to promote the unfounded claim that higher minimum wages prompt job cuts and hurt workers, putting at risk economic growth.

An article published in the IMF’s F&D magazine and shared on the IMF’s Facebook page claims that “an overly generous wage may prompt employers to cut jobs”.

“It is disheartening to see that the IMF continues to ignore a large body of evidence on the benefits of minimum wages, for working people and the economy as a whole. If the IMF is serious about addressing inequality, it should abandon policy advice and loan conditions that have failed to generate economic growth. The economic evidence they claim is simply not there. Also absent is an acknowledgement that IMF interventions including attacks on minimum wages have deepened economic and social crises, not alleviated them,” said Sharan Burrow, ITUC General Secretary.

The article “Does a Minimum Wage Help Workers?”, billed by the IMF as a “Back to Basics explainer”, is based on selective evidence that highlights the bias of the authors. The article recognises that most empirical studies find a positive or at most a very small negative relationship between minimum wages and employment levels. Despite that admission, the IMF economists base their recommendations on the assumption that higher minimum wages reduce employment levels. This ignores the larger body of evidence which shows the positive effects of minimum wages on productivity, employment, reduced informality and overall economic growth.

The IMF has regularly provided policy advice and lending conditionalities calling for a restriction in the level of the minimum wage. Recent examples include Lithuania, Colombia, Greece, Bolivia and Ecuador. Such policies have had devastating impacts on workers’ livelihoods and have contributed to increased poverty and inequality. Such measures have also been economically counterproductive – leading to deficits in aggregate demand and contributing to prolonged economic crises.

In policy advice and the recent article, IMF staff have promoted the assignment of minimum wage setting to “independent experts”. These suggestions run contrary to international labour standards including the Minimum Wage Fixing Convention of the ILO (C131), which calls for the involvement of social partners and the consideration of the needs of working families. The suggestion to end participatory procedures for fixing minimum wages is undemocratic and would result in decision-making that is separated from the realities facing workers.

“Workers are struggling to get by on the wages they earn. The ITUC Global Poll shows 59% of people in work are only just managing, struggling to make ends meet or not managing at all. Adequate minimum wages are key to assuring shared prosperity, economic growth and a just and secure world. They should first and foremost be based on the cost-of-living evidence, and they should be developed with the involvement of unions and employers within transparent, tripartite processes,” said Burrow.

The ITUC has written to IMF Managing Director Christine Lagarde outlining concerns over IMF policies on minimum wages ahead of the IMF Spring Meetings.