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Minimum Wages and Household Poverty: General Equilibrium Macro–Micro Simulations for South Africa

  • Pauw, Karl
  • Leibbrandt, Murray

The poverty-reducing effects of minimum wages depend on its effectiveness in targeting the poor and the extent to which job losses and price increases offset income gains. We develop a general equilibrium microsimulation model to simulate the economywide effects of minimum wages in South Africa. We find minimum wages lead to a marginal decline in poverty and overall inequality. However, job losses are more likely to affect the poorest among minimum wage workers, while rising production costs reduce overall household welfare. The policy is not an effective anti-poverty tool in South Africa given poor targeting and adverse price effects, which are often unaccounted for in policy simulations.

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Article provided by Elsevier in its journal World Development.

Volume (Year): 40 (2012)
Issue (Month): 4 ()
Pages: 771-783

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Handle: RePEc:eee:wdevel:v:40:y:2012:i:4:p:771-783
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  1. Klasen, Stephan & Woolard, Ingrid, 2000. "Surviving Unemployment without State Support: Unemployment and Household Formation in South Africa," IZA Discussion Papers 237, Institute for the Study of Labor (IZA).
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  3. Dinkelman, Taryn & Ranchhod, Vimal, 2011. "Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa," CEPR Discussion Papers 8682, C.E.P.R. Discussion Papers.
  4. Bird, Kelly & Manning, Chris, 2008. "Minimum Wages and Poverty in a Developing Country: Simulations from Indonesia's Household Survey," World Development, Elsevier, vol. 36(5), pages 916-933, May.
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  10. François Bourguignon & Amadéo Spadaro, 2005. "Microsimulation as a tool for evaluating redistribution policies," PSE Working Papers halshs-00590863, HAL.
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  13. Balcombe, Kelvin George & Bailey, Alastair & Morrison, Jamie & Rapsomanikis, George & Thirtle, Colin G., 2000. "Stochastic biases in technical change in South African agriculture," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 39(4), December.
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  18. repec:hal:wpaper:halshs-00590863 is not listed on IDEAS
  19. Essama-Nssah, B. & Go, Delfin S. & Kearney, Marna & Korman, Vijdan & Robinson, Sherman & Thierfelder, Karen, 2007. "Economy-wide and distributional impacts of an oil price shock on the south African economy," Policy Research Working Paper Series 4354, The World Bank.
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