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The Impact of Minimum Wages on Wages, Work and Poverty in Nicaragua

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Author Info

  • Alaniz, Enrique

    ()
    (Fundación Internacional para el Desafío Económico Global (FIDEG))

  • Gindling, T. H.

    ()
    (University of Maryland, Baltimore County)

  • Terrell, Katherine

    (University of Michigan)

Abstract

We use an individual-level panel data set to study the impact of changes in legal minimum wages on a host of labor market outcomes in Nicaragua including: a) wages and employment, b) transitions of workers across jobs (in the covered and uncovered sectors) and employment status (unemployment and out of the labor force), and c) transitions into and out of poverty. We find that changes in the legal minimum wage affect only those workers whose initial wage (before the change in minimum wages) is close to the minimum. For example, increases in the legal minimum wage lead to significant increases in the wages and decreases in employment of private covered sector workers who have wages within 20% of the minimum wage before the change, but have no significant impact on wages in other parts of the distribution. The estimates from the employment transition equations suggest that the decrease in covered private sector employment is due to a combination of layoffs and reductions in hiring. Most workers who lose their jobs in the covered private sector as a result of higher legal minimum wages leave the labor force or go into unpaid family work; a smaller proportion find work in the public sector. Our analysis of the relationship between the minimum wage and household income finds: a) increases in legal minimum wages increase the probability that a poor worker's family will move out of poverty, and b) increases in legal minimum wages are more likely to reduce the incidence of poverty if they impact the head of the household rather than the non-head.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5702.

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Length: 49 pages
Date of creation: May 2011
Date of revision:
Publication status: published in: Labour Economics, 2011, 18 (S1), S45-S59
Handle: RePEc:iza:izadps:dp5702

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Keywords: poverty; minimum wages; employment;

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References

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  1. Gindling, T.H. & Terrell, Katherine, 2008. "Minimum Wages, Globalization, and Poverty in Honduras," Working Paper Series RP2008/23, World Institute for Development Economic Research (UNU-WIDER).
  2. Carlos Arango & Angélica Pachón, 2004. "Minimum Wages in Colombia: Holding the Middle with a Bite," BORRADORES DE ECONOMIA 003224, BANCO DE LA REPÚBLICA.
  3. 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.
  4. Gindling, T. H. & Terrell, Katherine, 2004. "Legal Minimum Wages and the Wages of Formal and Informal Sector Workers in Costa Rica," IZA Discussion Papers 1018, Institute for the Study of Labor (IZA).
  5. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, December.
  6. Lustig, N. & Mcleod, D., 1996. "Minimum Wages and Poverty in Developing Countries : Some Empirical Evidence," Papers 125, Brookings Institution - Working Papers.
  7. 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).
  8. Claudio Montenegro & Carmen Pagés-Serra, 2003. "Who Benefits from Labor Market Regulations? Chile 1960-1998," Research Department Publications 4345, Inter-American Development Bank, Research Department.
  9. Addison, John T. & Blackburn, McKinley L., 1998. "Minimum Wages and Poverty," ZEW Discussion Papers 98-42, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
  11. Mariano Bosch & Marco Manacorda, 2010. "Minimum Wages and Earnings Inequality in Urban Mexico," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 128-49, October.
  12. Gindling, T.H. & Terrell, Katherine, 2009. "Minimum wages, wages and employment in various sectors in Honduras," Labour Economics, Elsevier, vol. 16(3), pages 291-303, June.
  13. David Neumark & Wendy Cunningham & Lucas Siga, 2004. "The Effects of the Minimum Wage in Brazil on the Distribution of Family Incomes: 1996-2001," Working Papers 050627, University of California-Irvine, Department of Economics.
  14. Andalón, Mabel & Pagés, Carmen, 2008. "Minimum Wages in Kenya," IZA Discussion Papers 3390, Institute for the Study of Labor (IZA).
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Blog mentions

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  1. Minimum wages in Nicaragua
    by Economic Logician in Economic Logic on 2011-02-09 14:57:00
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Cited by:
  1. Alvarado, Rafael, 2012. "Wages differentials in Ecuador: A regional approach with sample selection of Heckman and Oaxaca-Blinder decomposition," MPRA Paper 37470, University Library of Munich, Germany.

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