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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
Date of revision:
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. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," NBER Working Papers 12663, National Bureau of Economic Research, Inc.
  2. Pablo Fajnzylber, 2001. "Minimum Wage Effects Throughout the Wage Distribution: Evidence from Brazil's Formal and Informal Sectors," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting] 098, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
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  19. Richard V. Burkhauser & Kenneth A. Couch & David C. Wittenburg, 1996. "Who gets what from minimum wage hikes: A re-estimation of Card and Krueger's distributional analysis in "Myth and Measurement: The New Economics of the Minimum Wage."," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 49(3), pages 547-552, April.
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Cited by:
  1. Pauw, Karl & Leibbrandt, Murray, 2012. "Minimum Wages and Household Poverty: General Equilibrium Macro–Micro Simulations for South Africa," World Development, Elsevier, vol. 40(4), pages 771-783.
  2. 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.
  3. Basu, Arnab K & Chau, Nancy H & Kanbur, Ravi, 2011. "Contractual Dualism, Market Power and Informality," CEPR Discussion Papers 8485, C.E.P.R. Discussion Papers.
  4. Jose Antonio Cordero, 2009. "Honduras: Recent Economic Performance," CEPR Reports and Issue Briefs 2009-42, Center for Economic and Policy Research (CEPR).
  5. Alaniz, Enrique & Gindling, T.H. & Terrell, Katherine, 2011. "The impact of minimum wages on wages, work and poverty in Nicaragua," Labour Economics, Elsevier, vol. 18(S1), pages S45-S59.
  6. 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).
  7. World Bank, 2012. "Better Jobs in Central America : The Role of Human Capital," World Bank Other Operational Studies 11924, The World Bank.
  8. ArnabK. Basu & NancyH. Chau & Ravi Kanbur, 2010. "Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws," Economic Journal, Royal Economic Society, vol. 120(543), pages 244-269, 03.
  9. 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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