Employment protection legislation and minimum wages are both influential factors that affect the quality of jobs for workers and their subsequent overall well-being. However, there are large variations in how both areas are implemented across countries and labour models, with far-reaching impacts for economies, businesses and individuals.
Data on how countries differ in their approach to protecting workers and promoting adaptable labour markets is key to informing policy debates.
The OECD indicators of employment protection legislation evaluate the strictness of regulations on dismissals as well as on the use of temporary contracts.
Recent years have seen renewed interest at international level in statutory minimum wages. This echoes an increasing consensus among policy makers and academics that, at the level set in most OECD countries, minimum wage increases (even large ones) have had a positive effect on low incomes but no or limited negative effects on employment. With inflation reaching record-high levels, minimum wages may become even more important.
The OECD indicators of employment protection legislation bring out strong differences in labour market and social models. For example, three of the four countries with the least strict regulation for dismissing regular workers are Anglo-Saxon: the United States, Canada and Australia. Geographically, OECD countries in North America and Australasia have regulation that is evaluated to be below the OECD average level of strictness. By contrast, regulation in the majority of the OECD countries that are also members of the European Union have levels above the OECD average. Four of the five countries with the most strict regulation are EU countries: Czechia, the Netherlands, Portugal and Italy. English-speaking countries combine low dismissal costs for firms with relatively few protective measures for workers, while dismissal costs and job security for regular workers are comparatively high in many EU countries.
Currently, 30 out of 38 OECD countries have a statutory minimum wage in place, and minimum wages also exist in most non-OECD emerging economies. In the eight OECD countries without a statutory minimum (Austria, Denmark, Finland, Iceland, Italy, Norway, Sweden and Switzerland), sector or occupation-level collective agreements include de-facto wage floors for large parts of the workforce.
Gross minimum-wage levels expressed as a share of median wages (so-called “Kaitz ratios”) vary significantly across countries. The average for the OECD area, at 55%, increased from 48% in 2005 in a context of modest overall wage growth. Indeed, the 2005-21 period saw substantial upwards movements in about half of OECD countries, particularly in Central and Eastern European countries.
