1 RDW 2015 Evaluation of the new Minimum Wage in Cabo Verde: specific reference to INFORMALITY and DOMESTIC WORKERS Patrick Belser Rosalia Vazquez-Alvarez July 2015

2 Presentation I.Background II.The structure of the survey III.Results so far: Phase 1 IV.Future intentions

3 1. BACKGROUND The Country Old Portuguese colony Archipelago of 10 islands about 450km off the coast of Senegal (and the size of Switzerland) 500,000 population (huge diaspora especially in the USA) Classified: lower middle class, per capita US $4,000 (2012) Tourism, maritime transport, remittances Currency, Cabo Verde Escudo (aprox 110 units = Euro) Unemployment = 16.4% mostly youth and also high skilled

4 What lead to the establishment of MW in Jan 2014? Foreign enterprise settle and offer wages below required for survival Unions claim the need for a MW WORKERS: 15,000 CVE EMPLOYERS: 10,000 CVE ILO asked to assess a possible MW level (data, only LFS-2009 without wage or income information) 2015 Social Dialogue commission (3p) agrees to a MW of 11,000 CVE per month to come into effect universally on 1 st Jan 2014 Jan 2013, first ILO Micro/Macro study shows that a MW of 12,000 CVE is reasonable  Dec 2013: Phase 1 of the M&E  Jan 2014, MW becomes law  Jan nd Phase of the M&E

5 What is the purpose of the M&E exercise in Cabo Verde?  Produce wage and income data for Cabo Verde  Raise awareness on the new MW policy  Evaluate if the level of 11,000 CVE is (initially) a good target level by evaluating the importance on:  Wages and income (individuals, households)  Inequality  Compliance  Poverty  And for specific groups for which their inclusion in the MW policy was initially questioned (Domestic workers, agricultural workers)

6 Structure of the Survey  Two Phase collection each is an independent cross- section (panel structure not possible)  About 1500 household surveyed  Household characteristics  Characteristics and labour market behaviour of individuals aged 10 and above  All islands are covered to reflect population in each island  Phase 1, completed and data analysed  Phase II, completed but data not yet delivered  Before & After exercise requires both Phase 1 & II  Today we present estimates from Phase I

7 Phase I: data & Estimates 4,858 individuals: 1,158 households  About 370 individuals don’t have information and are not attached to households  We drop ‘multiple’ family households (about 10) 4,483 individuals: 1,141 households  After creating household variables, we drop all individuals age below 10 and entries that are inconsistent 3,429 individuals: 1,132 households  [279,100 individuals, 89,200 households]

8 Distribution of the population

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18 What would happen to the wage distribution if all wage workers received at least the Minimum Wage? We assume all work the same amount of hours as those they declared before the MW law was passed

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22 What would happen to the distribution of household income and to poverty levels if we allow for all who work (wage employees and own account workers) to get the MW? We assume: all work the same amount of hours as those they declared before the MW law was passed Household income based on labour income only We use the national absolute poverty line of 4,166 ESCUDOS per person per month.

23  In the absence of the MW, 52.8% of households are poor  If their working members had received the MW, 48.7%

24 How was the knowledge of the population with regards to MW in December 2013?

25 What can we conclude so far?  The information channels before the implementation of the law were not effective  Heterogeneity between islands with regards to MW and its effects  If complied with, the level of 11,000 Escudos would affect a significant fraction of individuals (24%)  But in the case that labour income is the only source of income, then poverty might not be significantly reduced (due to unemployment, low number of hours worked)  The MW on domestic workers would have a significant impact on them but also overall in the population due to the fact that large number of female participants do so as DW (21%)  Informality is high (64.4%) so that lighthouse effects of the MW would have positive effects at reducing poverty

26 Next, after receiving Phase II  Has the MW affected employment?  In general  Of domestic workers  Informality?  Has it affected the participation behaviour of individuals?  Has it affected the income at household level?  Compliance?  Knowledge of the law among individuals in the population