In developing countries, minimum wages have the potential to reduce inequality and distribute income to low paid workers, so as to ensure that it meets their basic minimum needs. From a policy perspective, minimum wage is an important labour market instrument and is often introduced with a clear welfare objective of raising the wages of low-paid workers and improving the wage/income distribution (Belser and Rani (2015)). However, there has been an over emphasis on the employment effects of minimum wages in the literature, which has to a large extent overshadowed the redistributive impacts and its effects on the wage distribution. The literature focusing on employment effects often also ignores the impact of minimum wages on the wage distribution, wherein some of the low wage workers potentially earn better wages due to the existence of minimum wages or increase in minimum wages. In this regard, Dickens et al. (2012) recently have pointed out that “if the impact on wage inequality and not employment is the first-order effect of the minimum wage then the existing literature on the minimum wage has been poorly
focused” (p.1).