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The Labor Impact of Minimum Wages: A Method for Estimating the Effect in Emerging Economies using Chilean Panel Data

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  • Nicolás Grau
  • Oscar Landerretche
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    Abstract

    We develop and use a statistical matching technique to construct a panel data set from the Chilean National Employment Survey; and then use this panel to test the short term impacts of minimum wage increases during the 1996-2005 period.We estimate wage increase effects for the treated group (people earning wages between ex ante an ex post minimum wages), the hours worked and the employment effects for this group. We also estimate the effect on the proba- bility of obtaining a job for a theoretical treated group of unemployed and inactive workers constructed by estimating their likely wage in the case that they found one. We then estimate the integral of these three effects (wage increase, wage loss and lower probability of obtaining a job). We find that minimum wage increases do have a significant impact on the wages of the treated group, hence the suspicion that they are somehow made irrelevant by informal practices in Chilean labor markets seems to be unfunded. We find that there is a significant negative effect on the probability of staying employed, a negative effect on hours worked and a signifi- cant negative effect on the probability of finding the job. We find that the integral of the three effects is positive and has statistical significance. We conclude that, in general, minimum wage increases in Chile during the aforementioned period have increased the real income of treated and potentially treated workers. However, we also find that there is a redistribution of income among these workers in favor of currently employed workers. We submit our results to several robustness checks including a variety of definitions of income and wages, a continuous changing control group, a “dif-in-dif” approach and a pressure and distance.approach. We conclude that, if anything, minimum wage increases have generated real income redistribution towards the treated workers as well as among them in Chile.

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    Bibliographic Info

    Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp329.

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    Length: 52 pages
    Date of creation: Jan 2011
    Date of revision:
    Handle: RePEc:udc:wpaper:wp329

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    Web page: http://www.econ.uchile.cl/
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    References

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    1. Sara lemos, 2004. "The Effect of the Minimum Wage on Prices," Discussion Papers in Economics 04/7, Department of Economics, University of Leicester.
    2. John M. Abowd & Francis Kramarz & Thomas Lemieux & David N. Margolis, 2000. "Minimum Wages and Youth Employment in France and the United States," NBER Chapters, in: Youth Employment and Joblessness in Advanced Countries, pages 427-472 National Bureau of Economic Research, Inc.
    3. Stewart, Mark B., 2002. "The Impact Of The Introduction Of The Uk Minimum Wage On The Employment Probabilities Of Low Wage Workers," The Warwick Economics Research Paper Series (TWERPS) 630, University of Warwick, Department of Economics.
    4. Claudio Sapelli, 1996. "Modelos para Pensar el Mercado de Trabajo: Una Revisión de la Literatura Chilena," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 251-276.
    5. Richard Dickens & Alan Manning, 2002. "Has The National Minimum Wage Reduced UK Wage Inequality?," CEP Discussion Papers dp0533, Centre for Economic Performance, LSE.
    6. Janet Currie & Bruce Fallick, 1993. "The Minimum Wage and the Employment of Youth: Evidence from the NLSY," NBER Working Papers 4348, National Bureau of Economic Research, Inc.
    7. 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.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. La (ir)relevancia del salario mínimo en Chile
      by Dany Jaimovich - Bakary Baludin in Development Therapy on 2012-07-18 12:40:00
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    Cited by:
    1. Gonzalo Castex, 2013. "Aumento del Salario Mínimo y sus Efectos sobre el Mercado Laboral," Working Papers Central Bank of Chile 690, Central Bank of Chile.
    2. Gonzalo Castex H., 2012. "Aumento del Salario Mínimo y sus Efectos sobre el Mercado Laboral," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(2), pages 117-129, August.

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