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Minimum Wages, Globalization and Poverty in Honduras

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  • Gindling, T. H.

    ()
    (University of Maryland, Baltimore County)

  • Terrell, Katherine

    (University of Michigan)

Abstract

To be competitive in the global economy, some argue that Latin American countries need to reduce or eliminate labor market regulations such as minimum wage legislation because they constrain job creation and hence increase poverty. On the other hand, minimum wage increases can have a direct positive impact on family income and may therefore help to reduce poverty. We take advantage of a complex minimum wage system in a poor country that has been exposed to the forces of globalization to test whether minimum wages are an effective poverty reduction tool in this environment. We find that minimum wage increases in Honduras reduce extreme poverty, with an elasticity of -0.18, and all poverty, with an elasticity of -0.10 (using the national poverty lines). These results are driven entirely by the effect on workers in large private sector firms, where minimum wage legislation is enforced. Increases in the minimum do not affect the incidence of poverty in sectors where minimum wages are not enforced (small firms) or do not apply (self-employed and public sector).

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2497.

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Length: 35 pages
Date of creation: Dec 2006
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Handle: RePEc:iza:izadps:dp2497

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Keywords: minimum wage; poverty; Central America; Honduras;

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References

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  1. Micco, Alejandro & Pagés, Carmen, 2006. "The Economic Effects of Employment Protection: Evidence from International Industry-Level Data," IZA Discussion Papers 2433, Institute for the Study of Labor (IZA).
  2. Gindling, T. H. & Terrell, Katherine, 2004. "The Effects of Multiple Minimum Wages Throughout the Labor Market," IZA Discussion Papers 1159, Institute for the Study of Labor (IZA).
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Citations

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Cited by:
  1. Basu, Arnab K. & Chau, Nancy & Kanbur, Ravi, 2007. "Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws," IZA Discussion Papers 2998, Institute for the Study of Labor (IZA).
  2. Basu, Arnab K & Chau, Nancy H & Kanbur, Ravi, 2011. "Contractual Dualism, Market Power and Informality," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8485, C.E.P.R. Discussion Papers.
  3. 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.
  4. Pauw, Karl & Leibbrandt, Murray, 2012. "Minimum Wages and Household Poverty: General Equilibrium Macro–Micro Simulations for South Africa," World Development, Elsevier, Elsevier, vol. 40(4), pages 771-783.
  5. World Bank, 2012. "Better Jobs in Central America : The Role of Human Capital," World Bank Other Operational Studies 11924, The World Bank.
  6. Leif Danziger, 2009. "Noncompliance and the Effects of the Minimum Wage on Hours and Welfare in Competitive Labor Markets," CESifo Working Paper Series 2786, CESifo Group Munich.
  7. Jose Antonio Cordero, 2009. "Honduras: Recent Economic Performance," CEPR Reports and Issue Briefs, Center for Economic and Policy Research (CEPR) 2009-42, Center for Economic and Policy Research (CEPR).
  8. Tim H. Gindling & Katherine Terrell, 2010. "The Impact of Minimum Wages on Wages, Work and Poverty in Nicaragua," UMBC Economics Department Working Papers 10-126, UMBC Department of Economics.
  9. Basu, Arnab K. & Chau, Nancy & Siddique, Zahra, 2011. "Tax Evasion, Minimum Wage Non-Compliance and Informality," IZA Discussion Papers 6228, Institute for the Study of Labor (IZA).

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