Minimum Wage: Empirical evidence for Uruguay

Since the end of the nineties, as most of Latin American countries, Uruguay has observed a trend toward wage inequality. In order to explain the increasing inequality prior research focused on several issues such as trade openness, technological change and labor policies. In this research we focus on minimum wage and its effects on wage structure, applying the DiNardo, Fortín and Lemieux semi-parametric approach which implies counterfactual exercises assuming zero employment effect. For the period 1986-2003, where minimum wage decreases by 66% in real terms (3.7% the yearly average), we find that it contributes slightly to wage inequality only for males. For the period 2004-2009, where minimum wage increases by 153% (25.4% the yearly average), we find that it contributes to decrease wage inequality for females. These results enable us to conclude: i) it is not clear that the erosion of minimum wage during the nineties is responsible for the increase in wage inequality; and ii) the re-introduction of minimum wage helps to decrease only female wage inequality. Nothing can be said about efficiency of this policy and further research is required on the issue of employment effect.