Who earns minimum wages in Europe - European Trade Union ...

index may be similar across countries but mask compositional differences
(OECD 1998). In this case, comparing the basic index between dissimilar
countries might lead to serious misinterpretations. In order to improve its
comparability, several adjustments to the basic Kaitz index have been
proposed in the literature:
— The composition of the population affected by the Kaitz index might
differ across countries; it is therefore advisable to compare indices for
groups with similar characteristics (such as age, gender, occupation,
educational attainment, contract type etc.).
— Most European countries apply lower sub-minima for young or
inexperienced workers (e.g. teenagers), mainly in an attempt to curb
potential disemployment effects for these groups. International
comparability requires the use of different Kaitz indices for groups
affected by sub-minima.
— Although most analysts compute the index with average earnings as
denominator, using median earnings might yield more comparable
results. The reason for this is that countries with higher wage dispersion
also have lower minimum wages (OECD 1998). A Kaitz index based on
median earnings is less affected by the shape of the overall wage
distribution than an index based on average earnings.
— International comparisons of Kaitz indices are sensitive to the inclusion
of bonuses, overtime, and other additional payments; countries in which
the incidence of such payments is large will display a non-adjusted Kaitz
index (i.e. excluding additional payments) that overestimates the
effective bite of the minimum wage.
— Conversely, the basic Kaitz index can lead to flawed comparisons if gross
earnings are used instead of net earnings: the more a country's tax
system is progressive, the more the gross Kaitz index understates the bite
of the minimum wage.
— Finally, it is important to take institutional differences into account when
comparing Kaitz indices. For instance, national labour institutions differ
in the extent to which hikes in the minimum wage are transmitted further
up in the wage structure. As a consequence, Dolado et al. (1996) argue
that it is safer to analyse changes over time than cross-country
differences, especially in situations of considerable institutional diversity
between countries.
2.2.2 The employment spike
Who earns minimum wages in Europe ?
The distance between the wage floor and the centre of the earnings
distribution is a useful heuristic to measure the bite of minimum wages. This
being said, the Kaitz index alone cannot give a complete picture of the impact
Report 124
19