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Minimum wage effects throughout the wage distribution: evidence from Brazil’s formal and informal sectors

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  • Pablo Fajnzylber

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    Abstract

    This paper investigates the effects of minimum wages on the income and employment of individuals, using longitudinal data from Brazil’s Monthly Employment Survey over the 1982-1997 period. We use information on 541,194 individuals, for which we consider data from two interviews performed 12 months apart. Our sample is restricted to workers aged 15 to 65 in the first interview, that were (initially) employed as formal salaried (62%), informal salaried (20%) or self-employed (18%). We provide detailed estimates of minimum wage effects at different points of the complete wage distribution, and calculate both contemporaneous and lagged effects, for formal and informal workers. We also estimate, indirectly, the effect of minimum wages on the probability of transitioning into different sectors of the labor market: salaried formal and informal work, self-employment, unemployment and inactivity. In order to provide some insight into the potential effects of minimum wages on family welfare and poverty, we obtain separate estimates for men and women, for workers under and above age 21, and for household heads and non-heads. We find significant minimum wage effects across the whole wage distribution, and both in the formal and the informal sectors. We also find that the total impact of minimum wages on workers earnings (derived from current and lagged effects) is positive but smaller than the contemporaneous one. As for employment elasticities, our estimates suggest that they are negative for most low-wage workers, being lower in absolute value for formal salaried workers (around -0.1 at the bottom of the wage distribution) than for low-wage informal salaried and self employed (between -0.25 and -0.35). Other results include higher earnings elasticities for men, adults and heads of households than for women, teenagers and non-heads, respectively.

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    File URL: http://www.cedeplar.ufmg.br/pesquisas/td/TD%20151.pdf
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    Bibliographic Info

    Paper provided by Cedeplar, Universidade Federal de Minas Gerais in its series Textos para Discussão Cedeplar-UFMG with number td151.

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    Length: 57 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:cdp:texdis:td151

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    Postal: Cedeplar-FACE-UFMG Av. Antonio Carlos, 6627 Belo Horizonte, MG 31270-901 Brazil

    Related research

    Keywords: minimum wage; Brazil;

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    1. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
    2. Freeman, Richard B, 1996. "The Minimum Wage as a Redistributive Tool," Economic Journal, Royal Economic Society, vol. 106(436), pages 639-49, May.
    3. Neumark, D. & Schweitzer, M. & Wascher, W., 1999. "The Effect of Minimum Wages Throughout the Wage Distribution," Papers 9919, London School of Economics - Centre for Labour Economics.
    4. David Card & Alan B. Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," NBER Working Papers 4509, National Bureau of Economic Research, Inc.
    5. David Neumark & William Wascher, 1995. "Minimum wage effects on school and work transitions of teenagers," Finance and Economics Discussion Series 95-7, Board of Governors of the Federal Reserve System (U.S.).
    6. Marcelo Neri & Gustavo Gonzaga & José Márcio Camargo, 1998. "Efeitos informais do salário mínimo e pobreza," Textos para discussão 393, Department of Economics PUC-Rio (Brazil).
    7. Abowd, John M & Kramarz, Francis & Margolis, David N, 1999. "Minimum Wages and Employment in France and the United States," CEPR Discussion Papers 2159, C.E.P.R. Discussion Papers.
    8. Gabriel Ulyssea & Miguel N. Foguel, 2006. "Efeitos do Salário Mínimo Sobre o Mercado de Trabalho Brasileiro," Discussion Papers 1168, Instituto de Pesquisa Econômica Aplicada - IPEA.
    9. Maloney, William F, 1999. "Does Informality Imply Segmentation in Urban Labor Markets? Evidence from Sectoral Transitions in Mexico," World Bank Economic Review, World Bank Group, vol. 13(2), pages 275-302, May.
    10. Machin, Stephen & Manning, Alan, 1996. "Employment and the Introduction of a Minimum Wage in Britain," Economic Journal, Royal Economic Society, vol. 106(436), pages 667-76, May.
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    Cited by:
    1. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," Working Papers 060708, University of California-Irvine, Department of Economics, revised Jan 2007.
    2. Gindling, T.H. & Terrell, Katherine, 2005. "The effect of minimum wages on actual wages in formal and informal sectors in Costa Rica," World Development, Elsevier, vol. 33(11), pages 1905-1921, November.
    3. Gindling, T.H. & Terrell, Katherine, 2008. "Minimum Wages, Globalization, and Poverty in Honduras," Working Papers RP2008/23, World Institute for Development Economic Research (UNU-WIDER).

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