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Minimum Wages and Household Poverty: General Equilibrium Macro–Micro Simulations for South Africa

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  • Pauw, Karl
  • Leibbrandt, Murray

Abstract

The poverty-reducing effects of minimum wages depend on its effectiveness in targeting the poor and the extent to which job losses and price increases offset income gains. We develop a general equilibrium microsimulation model to simulate the economywide effects of minimum wages in South Africa. We find minimum wages lead to a marginal decline in poverty and overall inequality. However, job losses are more likely to affect the poorest among minimum wage workers, while rising production costs reduce overall household welfare. The policy is not an effective anti-poverty tool in South Africa given poor targeting and adverse price effects, which are often unaccounted for in policy simulations.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 40 (2012)
Issue (Month): 4 ()
Pages: 771-783

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Handle: RePEc:eee:wdevel:v:40:y:2012:i:4:p:771-783

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Web page: http://www.elsevier.com/locate/worlddev

Related research

Keywords: Sub-Saharan Africa; South Africa; minimum wages; poverty; general equilibrium modeling; microsimulation modeling;

References

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  1. Daniela Casale & Colette Muller & Dorrit Posel, 2004. "'Two Million Net New Jobs': A Reconsideration Of The Rise In Employment In South Africa, 1995-2003," South African Journal of Economics, Economic Society of South Africa, vol. 72(5), pages 978-1002, December.
  2. Gary Fields & Ravi Kanbur, 2007. "Minimum wages and poverty with income-sharing," Journal of Economic Inequality, Springer, vol. 5(2), pages 135-147, August.
  3. Balcombe, Kelvin George & Bailey, Alastair & Morrison, Jamie & Rapsomanikis, George & Thirtle, Colin G., 2000. "Stochastic biases in technical change in South African agriculture," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 39(4), December.
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  5. Gindling, T.H. & Terrell, Katherine, 2010. "Minimum Wages, Globalization, and Poverty in Honduras," World Development, Elsevier, vol. 38(6), pages 908-918, June.
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  7. Geeta Kingdon & John Knight, 2005. "Unemployment in South Africa, 1995-2003: Causes, Problems and Policies," Economics Series Working Papers GPRG-WPS-010, University of Oxford, Department of Economics.
  8. Kelly Bird & Chris Manning, 2005. "Minimum Wages and Poverty in a Developing Country: Simulations from Indonesia's Household Survey," Departmental Working Papers 2005-09, The Australian National University, Arndt-Corden Department of Economics.
  9. François Bourguignon & Amadéo Spadaro, 2005. "Microsimulation as a tool for evaluating redistribution policies," PSE Working Papers halshs-00590863, HAL.
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  11. Servaas Van der berg & Megan Louw & Derek Yu, 2008. "Post-Transition Poverty Trends Based On An Alternative Data Source," South African Journal of Economics, Economic Society of South Africa, vol. 76(1), pages 58-76, 03.
  12. Lustig, N. & Mcleod, D., 1996. "Minimum Wages and Poverty in Developing Countries : Some Empirical Evidence," Papers 125, Brookings Institution - Working Papers.
  13. François Bourguignon & Maurizio Bussolo & Luiz A. Pereira da Silva, 2008. "The Impact of Macroeconomic Policies on Poverty and Income Distribution : Macro-Micro Evaluation Techniques and Tools," World Bank Publications, The World Bank, number 6586, October.
  14. Dani Rodrik, 2006. "Understanding South Africa's Economic Puzzles," NBER Working Papers 12565, National Bureau of Economic Research, Inc.
  15. Tom Hertz, 2005. "The Effect of Minimum Wages on the Employment and Earnings of South Africa's Domestic Service Workers," Upjohn Working Papers and Journal Articles 05-120, W.E. Upjohn Institute for Employment Research.
  16. Taryn Dinkelman & Vimal Ranchhod, 2010. "Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa," SALDRU Working Papers 44, Southern Africa Labour and Development Research Unit, University of Cape Town.
  17. Essama-Nssah, B. & Go, Delfin S. & Kearney, Marna & Korman, Vijdan & Robinson, Sherman & Thierfelder, Karen, 2007. "Economy-wide and distributional impacts of an oil price shock on the south African economy," Policy Research Working Paper Series 4354, The World Bank.
  18. Klasen, Stephan & Woolard, Ingrid, 2000. "Surviving Unemployment without State Support: Unemployment and Household Formation in South Africa," IZA Discussion Papers 237, Institute for the Study of Labor (IZA).
  19. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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Cited by:
  1. Kapelyuk Sergey, 2014. "Impact of minimum wage on income distribution and poverty in Russia," EERC Working Paper Series 14/03e, EERC Research Network, Russia and CIS.

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