Measuring the impact of minimum wages : evidence from Latin America
AbstractThe authors provide an overview of minimum wage levels in Latin America and their true impact on the distribution of wages, using both numerical measures and kernal density plots for eight countries (Argentina, Bolivia, Brazil, Chile, Colombia, Honduras, Mexico, and Uruguay). They especially try to identify"numeraire"effects--where the minimum is used as a reference higher in the wage distribution--and"lighthouse"effects--where it influences wage setting in the unregulated or"informal"sector. Their main findings: First, statutory minimum wages are often misleading, and graphical methods may be more reliable. Second, the minimum wage's effect on wage setting extends far beyond what is usually considered and probably beyond the effect in industrial countries. Using panel employment data from Colombia, where minimum wages seem high and binding, the authors quantify the minimum wage's effects on wages and on the probability of becoming unemployed. The Colombian case confirms the evidence offered by kernal density estimates: 1) The minimum wage can have an important impact on wage distribution in the neighborhood of the minimum wage. 2) The effects echo up the wage distribution in a clear demonstration of the"numeraire"effect. That this effect is stronger in Latin America than in the United States suggests that the minimum wage induces further-reaching rigidities in the labor market. The trade-off between any possible effect on poverty and reduced flexibility is likely to be more severe in countries where this is the case. The effects on employment, and unemployment, are substantial. 3) Informal salaries wages are also affected, confirming the graphical evidence of strong lighthouse effects. Self-employment earnings are not, however, confirming that the minimum wage is not simply serving as a measure of inflationary expectations.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 2597.
Date of creation: 30 Apr 2001
Date of revision:
Labor Policies; Wages; Compensation&Benefits; Health Monitoring&Evaluation; Environmental Economics&Policies; Public Health Promotion; Environmental Economics&Policies; Child Labor; Wages; Compensation&Benefits; Health Monitoring&Evaluation; Poverty Assessment;
Other versions of this item:
- William Maloney & Jairo Mendez, 2004. "Measuring the Impact of Minimum Wages. Evidence from Latin America," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 109-130 National Bureau of Economic Research, Inc.
- William F. Maloney & Jairo Nunez Mendez, 2003. "Measuring the Impact of Minimum Wages: Evidence from Latin America," NBER Working Papers 9800, National Bureau of Economic Research, Inc.
- R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
- R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Production Analysis, and Firm Location
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