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Macroeconomic consequences of minimum wage in a developing country

Author

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  • Carrillo-Maldonado, Paul
  • Cruz, Zoe

Abstract

This paper analyzes the effect of minimum wage on the macroeconomic performance of Ecuador. We use narrative identification to obtain the structural changes because of minimum wage. We estimate the impulse response function to understand the dynamic response of output, prices, and unemployment to exogenous changes in the minimum wage through local projections and structural vector autoregressive. The main results show a positive response of the gross domestic product in the short term when the minimum wage increases. Other variables such as inflation, unemployment rate, and real wage do not respond to this shock.

Suggested Citation

  • Carrillo-Maldonado, Paul & Cruz, Zoe, 2026. "Macroeconomic consequences of minimum wage in a developing country," Structural Change and Economic Dynamics, Elsevier, vol. 77(C), pages 137-148.
    • Handle: RePEc:eee:streco:v:77:y:2026:i:c:p:137-148
    DOI: 10.1016/j.strueco.2026.01.004
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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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