An analysis of the relationship between minimum wage, job creation, and poverty reduction. A case study of Ghana.

Ing. Issifu Ali

Master's thesis

Abstract:

The issue of poverty has been a key problem for almost all sub-Saharan African governments. The relationship between minimum wage and poverty is complex and multifaceted. While minimum wage policies are intended to improve the living standard for low-wage workers and contribute to poverty reduction efforts, they can also have unintended consequences. One possible effect is that employers could react to the increased wage expense by reducing their workforce or offering fewer working hours. The thesis sought to analyse the relationship between minimum wage and poverty in Ghana using secondary data from the World Development Indicator database in relation to 15 other West African countries from 2005 to 2022. The thesis employed fixed effect regression analysis, year trend analysis, interaction effect and comparison analysis for variable estimation. The findings of this research revealed a significant relationship between minimum wage and poverty. The results also highlight the substantial influence of the control variables such as the unemployment rate (UEM), total fertility rate (TFR), GDP per capita (GDP), manufacturing percentage on GDP (IND) and agriculture, forestry, and fisheries percentage on GDP (AGR) in shaping poverty levels. The interaction effect of minimum wage and manufacturing percentage on GDP in relation to poverty had a significant effect over time. These results can provide a policy direction to governments in implementing minimum wage in poverty eradication.

Abstract:

The issue of poverty has been a key problem for almost all sub-Saharan African governments. The relationship between minimum wage and poverty is complex and multifaceted. While minimum wage policies are intended to improve the living standard for low-wage workers and contribute to poverty reduction efforts, they can also have unintended consequences. One possible effect is that employers could react to the increased wage expense by reducing their workforce or offering fewer working hours. The thesis sought to analyse the relationship between minimum wage and poverty in Ghana using secondary data from the World Development Indicator database in relation to 15 other West African countries from 2005 to 2022. The thesis employed fixed effect regression analysis, year trend analysis, interaction effect and comparison analysis for variable estimation. The findings of this research revealed a significant relationship between minimum wage and poverty. The results also highlight the substantial influence of the control variables such as the unemployment rate (UEM), total fertility rate (TFR), GDP per capita (GDP), manufacturing percentage on GDP (IND) and agriculture, forestry, and fisheries percentage on GDP (AGR) in shaping poverty levels. The interaction effect of minimum wage and manufacturing percentage on GDP in relation to poverty had a significant effect over time. These results can provide a policy direction to governments in implementing minimum wage in poverty eradication.

Keywords

Minimum wage, Inflation, Unemployment, Corruption, poverty, developing country

Language used: English

Date on which the thesis was submitted / produced: 12. 1. 2024

Thesis defence

• Date of defence: 31. 1. 2024
• Supervisor: Mgr. Martin Guzi, Ph.D.
• Reader: doc. Ing. Robert Jahoda, Ph.D.

Masaryk University

Faculty of Economics and Administration

Master programme / field:
Public Finance and Economics / Public Finance and Economics