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

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  • Tim H. Gindling

    ()
    (UMBC)

  • Katherine Terrell

    ()
    (University of Michigan)

Abstract

In this paper we use an individual- and household-level panel data set to study the impact of changes in legal minimum wages on a host of labor market outcomes 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. We find no evidence that these workers become unemployed. 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 and improve the transition from poor to non-poor if they impact the head of the household rather than the non-head; this is because the head of the household is less likely than a non-head to lose his/her covered sector employment due to a minimum wage increase and because those heads that do lose covered sector employment are more likely to go to another paying job than are non-heads (who are more likely to go into unpaid family work or leave the labor force).

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Bibliographic Info

Paper provided by UMBC Department of Economics in its series UMBC Economics Department Working Papers with number 10-126.

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Length: 61 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:umb:econwp:10126

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Keywords: minimum wages; employment; poverty.;

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References

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  1. 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).
  2. 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.
  3. John T. Addison & McKinley L. Blackburn, 1999. "Minimum wages and poverty," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 52(3), pages 393-409, April.
  4. Gindling, T.H. & Terrell, Katherine, 2010. "Minimum Wages, Globalization, and Poverty in Honduras," World Development, Elsevier, Elsevier, vol. 38(6), pages 908-918, June.
  5. Neumark, David & Cunningham, Wendy & Siga, Lucas, 2006. "The effects of the minimum wage in Brazil on the distribution of family incomes: 1996-2001," Journal of Development Economics, Elsevier, Elsevier, vol. 80(1), pages 136-159, June.
  6. Lustig, N. & Mcleod, D., 1996. "Minimum Wages and Poverty in Developing Countries : Some Empirical Evidence," Papers, Brookings Institution - Working Papers 125, Brookings Institution - Working Papers.
  7. Bosch, Mariano & Manacorda, Marco, 2010. "Minimum Wages and Earnings Inequality in Urban Mexico," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7882, C.E.P.R. Discussion Papers.
  8. Andalón, Mabel & Pagés, Carmen, 2008. "Minimum Wages in Kenya," IZA Discussion Papers 3390, Institute for the Study of Labor (IZA).
  9. Claudio Montenegro & Carmen Pagés-Serra, 2003. "Who Benefits from Labor Market Regulations? Chile 1960-1998," Research Department Publications, Inter-American Development Bank, Research Department 4345, Inter-American Development Bank, Research Department.
  10. Carlos Arango & Angélica Pachón, 2004. "Minimum Wages in Colombia: Holding the Middle with a Bite," BORRADORES DE ECONOMIA 003224, BANCO DE LA REPÚBLICA.
  11. 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).
  12. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," IDB Publications 4119, Inter-American Development Bank.
  13. Gindling, T.H. & Terrell, Katherine, 2009. "Minimum wages, wages and employment in various sectors in Honduras," Labour Economics, Elsevier, Elsevier, vol. 16(3), pages 291-303, June.
  14. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262141027, December.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  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. World Bank, 2013. "Minimum Wage Policy : Lessons with a Focus on the ASEAN Region," World Bank Other Operational Studies 16687, The World Bank.
  2. Haroon Bhorat & Ravi Kanbur & Benjamin Stanwix, 2012. "Estimating the Impact of Minimum Wages on Employment, Wages and Non-wage Benefits: The Case of Agriculture in South Africa," Working Papers, University of Cape Town, Development Policy Research Unit 12149, University of Cape Town, Development Policy Research Unit.
  3. 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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