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Minimum Wage Hikes And Employment Transitions In Brazil

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  • Fabio Veras Soares
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    Abstract

    This paper investigates the effect of the minimum wage on employment transitions in Brazil and, in particular, on the informal sector transitions. We estimate the probability of becoming nonemployed (unemployed or out of the labour force) and the probability of moving to the informal sector after minimum wage hikes. We estimate these effects separately for periods with high and low inflation to assess how agents react to minimum wage hikes under different inflationary expectations, particularly, under different degrees of wage indexation. Workers affected by minimum wage increases are compared with similar workers further up in the wage distribution. In order to account for heterogeneity between the treated minimum wage workers and the comparison groups we use a difference-in-differences approach that compares treated and comparison groups in periods with nominal increase in the minimum wage with periods with no increase. In this last case the comparison and treated groups are defined as if there had been an increase in the minimum wage (pseudo-experiment). Such strategy is applied in a parametric way via probit estimates and also in a nonparametric way using kernel propensity score matching method. Our findings suggested that disemploymet effects were more likely to be observed in the late 1990´s than in the early 1980´s. This negative effect affects in 1990 affects both informal and formal workers, but it is not a characteristic of all minimum wage hike episodes. We also find no robust evidence that minimum wage hikes lead to transitions from the formal to the informal sector.

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    Bibliographic Info

    Paper provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its series Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] with number 164.

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    Date of creation: 2005
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    Handle: RePEc:anp:en2005:164

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    1. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S87-104, August.
    2. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20035, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
    3. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
    4. Francis Kramarz & Thomas Philippon, 2000. "The Impact of Differenctial Payroll Tax Subsidies on Minimum Wage Employment," Working Papers 2000-10, Centre de Recherche en Economie et Statistique.
    5. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
    6. Janet Currie & Bruce C. Fallick, 1996. "The Minimum Wage and the Employment of Youth Evidence from the NLSY," Journal of Human Resources, University of Wisconsin Press, vol. 31(2), pages 404-428.
    7. Welch, Finis, 1974. "Minimum Wage Legislation in the United States," Economic Inquiry, Western Economic Association International, vol. 12(3), pages 285-318, September.
    8. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier.
    9. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2001. "Evaluating the employment impact of a mandatory job search assistance program," IFS Working Papers W01/20, Institute for Fiscal Studies.
    10. Francis Kramarz & Thomas Philippon, 2000. "The Impact of Differenctial Payroll Tax Subsidies on Minimum Wage Employment," Working Papers 2000-10, Centre de Recherche en Economie et Statistique.
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