IDEAS home Printed from https://ideas.repec.org/p/bdr/borrec/1104.html
   My bibliography  Save this paper

Minimum wage effects on labour informality: heterogeneity across demographic groups in Colombia

Author

Listed:
  • Luis E. Arango
  • Luz A. Flórez
  • Laura D. Guerrero
  • Alejandra Morales-Rojas

Abstract

We present evidence of the minimum wage effects on labour informality rates in Colombia, where the informality is by far the most serious problem of the labour market. The working population is divided into sixteen groups depending on the age, gender, and educational level. This division allows us to estimate how the relative level of restrictiveness of the minimum wage across different demographic groups affect the probability of being an informal worker. We find that the higher the minimum wage with respect to the 70th percentile wage, the higher will be the probability of being informal. Across different demographic groups, we find significant effects for men and women between 18 to 25 years old with lower education levels. Also, less-educated women aged 51 to 65 years old are affected by the minimum wage policy. For these groups, an increase of one percentage point (pp) in the MW ratio increases the probability of having an informal job between 0.35 and 0.99 pp compared to the reference group (men aged 26 to 40 years old and with higher education level) depending on the informality rate measure employed. **** RESUMEN: Presentamos evidencia de los efectos del salario mínimo en las tasas de informalidad laboral en Colombia, donde la informalidad es el problema más grave del mercado laboral. Los trabajadores se dividen en dieciséis grupos según edad, género y nivel educativo. Esta división permite estimar cómo el nivel relativo de restricción del salario mínimo en diferentes grupos demográficos afecta la probabilidad de ser un trabajador informal. Se encuentra que cuanto mayor sea la razón del salario mínimo al salario del percentil 70, mayor será la probabilidad de tener un trabajo informal. Entre los diferentes grupos demográficos, encontramos efectos significativos para hombres y mujeres entre 18 y 25 años con bajo nivel educativo y. Asimismo, las mujeres de 51 a 65 años con bajo nivel educativo se ven afectadas por la política del salario mínimo. Para estos grupos, un aumento de un punto porcentual (pp) en la razón del salario mínimo aumenta la probabilidad de tener un trabajo informal entre 0,35 y 0,99 pp en comparación con el grupo de referencia (hombres de 26 a 40 años con mayor nivel educativo), dependiendo de la medida de la tasa de informalidad empleada.

Suggested Citation

  • Luis E. Arango & Luz A. Flórez & Laura D. Guerrero & Alejandra Morales-Rojas, 2020. "Minimum wage effects on labour informality: heterogeneity across demographic groups in Colombia," Borradores de Economia 1104, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1104
    DOI: https://doi.org/10.32468/be.1104
    as

    Download full text from publisher

    File URL: https://doi.org/10.32468/be.1104
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.32468/be.1104?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Meghan J. Millea & Jon P. Rezek & Brian Shoup & Joshua Pitts, 2017. "Minimum Wages in a Segmented Labor Market: Evidence from South Africa," Journal of Labor Research, Springer, vol. 38(3), pages 335-359, September.
    2. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    3. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section..
    4. Leonardo Fabio Morales & Carlos Medina, 2017. "Assessing the Effect of Payroll Taxes on Formal Employment: The Case of the 2012 Tax Reform in Colombia," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2017), pages 75-124.
    5. Verbeek, Marno & Nijman, Theo, 1992. "Can Cohort Data Be Treated as Genuine Panel Data?," Empirical Economics, Springer, vol. 17(1), pages 9-23.
    6. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    7. Jhon James Mora & Juan Muro, 2017. "Dynamic Effects of the Minimum Wage on Informality in Colombia," LABOUR, CEIS, vol. 31(1), pages 59-72, March.
    8. David Card, 1992. "Do Minimum Wages Reduce Employment? A Case Study of California, 1987–89," ILR Review, Cornell University, ILR School, vol. 46(1), pages 38-54, October.
    9. Leonardo Fabio Morales & Carlos Medina, 2017. "Assessing the Effect of Payroll Taxes on Formal Employment: The Case of the 2012 Tax Reform in Colombia," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2017), pages 75-124, November.
    10. Ham, Andrés, 2018. "The Consequences of Legal Minimum Wages in Honduras," World Development, Elsevier, vol. 102(C), pages 135-157.
    11. Doruk Cengiz & Arindrajit Dube & Attila Lindner & Ben Zipperer, 2018. "The effect of minimum wages on low-wage jobs: evidence from the United States using a bunching estimator," CEP Discussion Papers dp1531, Centre for Economic Performance, LSE.
    12. Cristina Fernández & Leonardo Villar, 2016. "A Taxonomy of Colombia’s Informal Labor Market," Coyuntura Económica, Fedesarrollo, vol. 46(1), pages 15-50.
    13. Megan Linde Leonard & T. D. Stanley & Hristos Doucouliagos, 2014. "Does the UK Minimum Wage Reduce Employment? A Meta-Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 52(3), pages 499-520, September.
    14. Cristina Fernandez & Leonardo Villar, 2017. "The Impact of Lowering the Payroll Tax on Informality in Colombia," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2017), pages 125-155, November.
    15. Stijn Broecke & Alessia Forti & Marieke Vandeweyer, 2017. "The effect of minimum wages on employment in emerging economies: a survey and meta-analysis," Oxford Development Studies, Taylor & Francis Journals, vol. 45(3), pages 366-391, July.
    16. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 87-104, August.
    17. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," ILR Review, Cornell University, ILR School, vol. 46(1), pages 22-37, October.
    18. Raquel Bernal & Marcela Eslava & Marcela Melendez & Alvaro Pinzon, 2017. "Switching from Payroll Taxes to Corporate Income Taxes: Firms’ Employment and Wages after the 2012 Colombian Tax Reform," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2017), pages 41-74.
    19. Hristos Doucouliagos & T. D. Stanley, 2009. "Publication Selection Bias in Minimum‐Wage Research? A Meta‐Regression Analysis," British Journal of Industrial Relations, London School of Economics, vol. 47(2), pages 406-428, June.
    20. Cristina Fernández & Leonardo Villar, 2016. "A Taxonomy of Colombia’s Informal Labor Market," Coyuntura Económica, Fedesarrollo, vol. 46(1), pages 15-50, June.
    21. Camilo Mondragón-Vélez & Ximena Pe�a & Daniel Wills, 2010. "Labor Market Rigidities and Informality in Colombia," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2010), pages 65-101.
    22. repec:fth:prinin:300 is not listed on IDEAS
    23. Verbeek, Marno & Nijman, Theo, 1993. "Minimum MSE estimation of a regression model with fixed effects from a series of cross-sections," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 125-136, September.
    24. Lemos, Sara, 2009. "Minimum wage effects in a developing country," Labour Economics, Elsevier, vol. 16(2), pages 224-237, April.
    25. Dale Belman & Paul J. Wolfson, 2014. "What Does the Minimum Wage Do?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wdmwd.
    26. David S. Lee, 1999. "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 977-1023.
    27. William Wascher & David Neumark, 2000. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment," American Economic Review, American Economic Association, vol. 90(5), pages 1362-1396, December.
    28. Blanchflower, David G & Oswald, Andrew J, 1994. "Estimating a Wage Curve for Britain: 1973-90," Economic Journal, Royal Economic Society, vol. 104(426), pages 1025-1043, September.
    29. Verbeek, M.J.C.M. & Nijman, T.E., 1992. "Can cohort data be treated as genuine panel data?," Other publications TiSEM d4eada8f-b91c-4fe7-a58c-7, Tilburg University, School of Economics and Management.
    30. Welch, Finis, 1974. "Minimum Wage Legislation in the United States," Economic Inquiry, Western Economic Association International, vol. 12(3), pages 285-318, September.
    31. Raquel Bernal & Marcela Eslava & Marcela Melendez & Alvaro Pinzon, 2017. "Switching from Payroll Taxes to Corporate Income Taxes: Firms’ Employment and Wages after the 2012 Colombian Tax Reform," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2017), pages 41-74.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arango, Luis E. & Rivera, Sergio A., 2022. "Moderate wage increases and flexible labour contracts to protect employment in Colombian manufacturing," Journal of Policy Modeling, Elsevier, vol. 44(3), pages 578-598.
    2. John Ariza & Floro Alexander Retajac, 2021. "Composición y evolución de la informalidad laboral en Colombia durante el período 2009-2019," Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, vol. 40(72), pages 115-148.
    3. Andrés Álvarez & Juan Camilo Chaparro & Carolina Gonz�lez & Santiago Levy & Dar�o Maldonado & Marcela Mel�ndez & Natalia Ram�rez & Marta Juanita Villaveces, 2022. "Reporte ejecutivo de la Misión de Empleo de Colombia," Documentos de trabajo 20156, Escuela de Gobierno - Universidad de los Andes.
    4. Karina Acosta & Juliana Jaramillo-Echeverri & Daniel Lasso & Alejandro Sarasti-Sierra, 2024. "Informalidad municipal en Colombia," Documentos de trabajo sobre Economía Regional y Urbana 327, Banco de la Republica de Colombia.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luis E. Arango & Luz A. Flórez, 2017. "Informalidad laboral y elementos para un salario mínimo diferencial por regiones en Colombia," Borradores de Economia 1023, Banco de la Republica de Colombia.
    2. Arango, Luis E. & Rivera, Sergio A., 2022. "Moderate wage increases and flexible labour contracts to protect employment in Colombian manufacturing," Journal of Policy Modeling, Elsevier, vol. 44(3), pages 578-598.
    3. Luis E. Arango & Sergio A. Rivera, 2020. "“Disemployment” effects of the minimum wage in the Colombian manufacturing sector," Borradores de Economia 1107, Banco de la Republica de Colombia.
    4. Arindrajit Dube & Attila S. Lindner, 2024. "Minimum Wages in the 21st Century," NBER Working Papers 32878, National Bureau of Economic Research, Inc.
    5. Ham Andrés & Maldonado Darío & Guzmán-Gutiérrez Carlos Santiago, 2021. "Recent trends in the youth labor market in Colombia: Diagnosis and policy challenges," IZA Journal of Labor Policy, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 11(1), pages 1-62, January.
    6. Luis E. Arango & Jesús A. Botero & Eleonora Dávalos & Daniela Gallo & Estefany Hernández, 2022. "Efectos fiscales del salario mínimo en Colombia," Borradores de Economia 1216, Banco de la Republica de Colombia.
    7. Neumark David, 2019. "The Econometrics and Economics of the Employment Effects of Minimum Wages: Getting from Known Unknowns to Known Knowns," German Economic Review, De Gruyter, vol. 20(3), pages 293-329, August.
    8. Pérez Pérez, Jorge, 2020. "The minimum wage in formal and informal sectors: Evidence from an inflation shock," World Development, Elsevier, vol. 133(C).
    9. Alessandra Brito & Miguel Foguel & Celia Kerstenetzky, 2017. "The contribution of minimum wage valorization policy to the decline in household income inequality in Brazil: A decomposition approach," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 40(4), pages 540-575, October.
    10. Holmlund, Bertil, 2014. "What do labor market institutions do?," Labour Economics, Elsevier, vol. 30(C), pages 62-69.
    11. Sinem Sefil‐Tansever & Ensar Yılmaz, 2024. "Minimum wage and spillover effects in a minimum wage society," LABOUR, CEIS, vol. 38(1), pages 150-176, March.
    12. Haroon Bhorat & Tara Caetano & Benjamin Jourdan & Ravi Kanbur & Christopher Rooney & Benjamin Stanwix & Ingrid Woolard, 2016. "Investigating the Feasibility of a National Minimum Wage for South Africa," Working Papers 201601, University of Cape Town, Development Policy Research Unit.
    13. John Schmitt, 2015. "Explaining the Small Employment Effects of the Minimum Wage in the United States," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 54(4), pages 547-581, October.
    14. Işık Enes & Orhangazi Özgür & Tekgüç Hasan, 2020. "Heterogeneous effects of minimum wage on labor market outcomes: A case study from Turkey," IZA Journal of Labor Policy, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 10(1), pages 1-41, March.
    15. Tomas Kucera, 2020. "Are Employment Effects of Minimum Wage the Same Across the EU? A Meta-Regression Analysis," Working Papers IES 2020/2, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2020.
    16. Florin Vadean & Stephen Allan, 2021. "The Effects of Minimum Wage Policy on the Long‐Term Care Sector in England," British Journal of Industrial Relations, London School of Economics, vol. 59(2), pages 307-334, June.
    17. Oliveira, Carlos, 2021. "How is the Minimum Wage Shaping the Wage Distribution: Minimum Wage, Spillovers, and Wage Inequality in Portugal," MPRA Paper 112534, University Library of Munich, Germany.
    18. Belman, Dale. & Wolfson, Paul J., 2016. "What does the minimum wage do in developing countries? : A review of studies and methodologies," ILO Working Papers 994893283402676, International Labour Organization.
    19. Jessen, Jonas & Kluve, Jochen, 2021. "The effectiveness of interventions to reduce informality in low- and middle-income countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 138.
    20. Pablo Blanchard & Paula Carrasco & Rodrigo Ceni & Cecilia Parada & Sofía Santín, 2021. "Distributive and displacement effects of a coordinated wage bargaining scheme," Documentos de Trabajo (working papers) 21-26, Instituto de Economía - IECON.

    More about this item

    Keywords

    minimum wage; labour informality; heterogeneity; salario mínimo; informalidad laboral; heterogeneidad;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdr:borrec:1104. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Clorith Angélica Bahos Olivera (email available below). General contact details of provider: https://edirc.repec.org/data/brcgvco.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.