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The Effects of Multiple Minimum Wages Throughout the Labor Market

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  • T. H. Gindling

    ()

  • Katherine Terrell

    ()

Abstract

This paper investigates the effects of legal minimum wages on wages, employment, hours worked and monthly earnings among workers covered by minimum wage legislation as well as those for whom it does not apply (the uncovered sector) in Costa Rica. This country’s large uncovered sector and complex minimum wage policy, which has for decades set numerous wages throughout the wage distribution, provide a stimulating counterpoint to the U.S. framework for the analysis of the impact of minimum wages. We find that legal minimum wages have a significant positive effect on the wages of workers in the covered sector (with an elasticity of 0.10) but no effect on wages of workers in the uncovered sector. We also find that a 10% increase in minimum wages lowers employment in the covered sector by 1.09% and decreases the average number of hours worked of those who remain in the covered sector by about 0.6%. Finally, we show that despite the wide range of minimum wages, the largest impact on the wages and employment of covered sector workers is in the lower half of the distribution.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp701.pdf
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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-701.

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Length: 44 pages
Date of creation: 01 May 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-701

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Keywords: minimum wages; employment; wages; Costa Rica;

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References

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  1. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier.
  2. Sara Lemos, 2004. "The Effects Of The Minimum Wage On Wages And Employment In Brazil - A Menu Of Minimum Wage Variables," Labor and Demography, EconWPA 0403008, EconWPA.
  3. repec:fth:prinin:330 is not listed on IDEAS
  4. Katherine Terrell & Fatma El Hamidi, 2001. "The Impact of Minimum Wages on Wage Inequality and Employment in the Formal and Informal Sector in Costa Rica," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 479, William Davidson Institute at the University of Michigan.
  5. Dickens, Richard & Machin, Stephen & Manning, Alan, 1999. "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 17(1), pages 1-22, January.
  6. Tauchen, George E, 1981. "Some Evidence on Cross-Sector Effects of the Minimum Wage," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(3), pages 529-47, June.
  7. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, Econometric Society, vol. 64(4), pages 957-79, July.
  8. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1998. "Minimum Wages and Employment in France and the United States," Papiers du Laboratoire de Microéconomie Appliquée, Université Panthéon-Sorbonne (Paris 1) 1998-12, Université Panthéon-Sorbonne (Paris 1).
  9. Ashenfelter, Orley & Smith, Robert S, 1979. "Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(2), pages 333-50, April.
  10. Maloney, William F. & Nunez, Jairo & Cunningham, Wendy & Fiess, Norbert & Montenegro, Claudio & Murrugarra, Edmundo & Santamaria,Mauricio & Sepulveda, Claudia, 2001. "Measuring the impact of minimum wages : evidence from Latin America," Policy Research Working Paper Series 2597, The World Bank.
  11. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 20(2), pages 487-528, June.
  12. Alan B. Krueger, 1994. "The Effect of the Minimum Wage When It Really Bites: A Reexamination of the Evidence from Puerto Rico," NBER Working Papers 4757, National Bureau of Economic Research, Inc.
  13. Neumark, D. & Schweitzer, M. & Wascher, W., 1999. "The Effect of Minimum Wages Throughout the Wage Distribution," Papers, London School of Economics - Centre for Labour Economics 9919, London School of Economics - Centre for Labour Economics.
  14. Gábor Kertei & János Köll?, 2004. "Fighting “Low Equilibria” by Doubling the Minimum Wage ? Hungary’s Experiment," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 2004-644, William Davidson Institute at the University of Michigan.
  15. 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], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gr 098, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
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  17. Bell, Linda A, 1997. "The Impact of Minimum Wages in Mexico and Colombia," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(3), pages S102-35, July.
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Citations

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Cited by:
  1. Andalón, Mabel & Pagés, Carmen, 2008. "Minimum Wages in Kenya," IZA Discussion Papers 3390, Institute for the Study of Labor (IZA).
  2. World Bank, 2007. "Costa Rica Poverty Assessment : Recapturing Momentum for Poverty Reduction," World Bank Other Operational Studies 7678, The World Bank.
  3. Larrain, Mauricio & Poblete, Joaquin, 2007. "Age-differentiated minimum wages in developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 84(2), pages 777-797, November.
  4. Nguyen Viet, Cuong, 2010. "The Impact of a Minimum Wage Increase on Employment, Wages and Expenditures of Low-Wage Workers in Vietnam," MPRA Paper 36751, University Library of Munich, Germany, revised 15 Aug 2011.
  5. Boeri, Tito & Garibaldi, Pietro & Ribeiro, Marta, 2010. "Behind the Lighthouse Effect," IZA Discussion Papers 4890, Institute for the Study of Labor (IZA).
  6. Gindling, T.H. & Terrell, Katherine, 2010. "Minimum Wages, Globalization, and Poverty in Honduras," World Development, Elsevier, Elsevier, vol. 38(6), pages 908-918, June.
  7. 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.
  8. Tim H. Gindling & Katherine Terrell, 2010. "The Impact of Minimum Wages on Wages, Work and Poverty in Nicaragua," UMBC Economics Department Working Papers 10-126, UMBC Department of Economics.

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