IDEAS home Printed from
   My bibliography  Save this paper

The Lighthouse Effect and Beyond


  • Tito Boeri
  • Pietro Garibaldi
  • Marta Ribeiro


A large body of empirical literature indicates that, contrary to predictions from economic theory, wages in the informal sector increase after a minimum wage hike. This phenomenon was so far explained as a byproduct of a signal (a lighthouse) conveyed by statutory minima to wage setting in the informal sector. A simple matching model shows that an increase in wages in the informal sector may also be induced by significant sorting and composition effects between the formal and the shadow sectors in the aftermath of the increase in the minimum wage. Using data on Brazil, we find that sorting accounts for at least one third of the increase in average wages in the informal sector after a minimum wage hike. This contribution of endogenous sorting to wage dynamics in the informal sector is also increasing over time.

Suggested Citation

  • Tito Boeri & Pietro Garibaldi & Marta Ribeiro, 2010. "The Lighthouse Effect and Beyond," Carlo Alberto Notebooks 193, Collegio Carlo Alberto.
  • Handle: RePEc:cca:wpaper:193

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Amadeo, Edward Joaquim & Gill, Indermit S. & Neri, Marcelo Côrtes, 2000. "Brazil: the pressure points in labor legislation," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 395, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    Full references (including those not matched with items on IDEAS)


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

    Cited by:

    1. Katzkowicz, Sharon & Pedetti, Gabriela & Querejeta, Martina & Bergolo, Marcelo, 2021. "Low-skilled workers and the effects of minimum wage in a developing country: Evidence based on a density-discontinuity approach," World Development, Elsevier, vol. 139(C).
    2. Samutpradit, Saisawat, 2024. "Employment effects of minimum wages in a dual economy: Evidence from Thailand," Journal of Development Economics, Elsevier, vol. 168(C).
    3. Hazans, Mihails, 2011. "What explains prevalence of informal employment in European countries : the role of labor institutions, governance, immigrants, and growth," Policy Research Working Paper Series 5917, The World Bank.
    4. Neumark, David & Munguía Corella, Luis Felipe, 2021. "Do minimum wages reduce employment in developing countries? A survey and exploration of conflicting evidence," World Development, Elsevier, vol. 137(C).
    5. Arindrajit Dube, 2019. "Minimum Wages and the Distribution of Family Incomes," American Economic Journal: Applied Economics, American Economic Association, vol. 11(4), pages 268-304, October.
    6. Miguel Á., Malo, 2017. "Labour market institutions in small Pacific island countries: Main guidelines for labour market reforms," MPRA Paper 79988, University Library of Munich, Germany.
    7. Rutledge, Zach & Richards, Timothy & Martin, Philip, 2023. "Adverse Effect Wage Rates and US Farm Wages," 2024 Allied Social Sciences Association (ASSA) Annual Meeting, January 5-7, 2024, San Antonio, Texas 339074, Agricultural and Applied Economics Association.
    8. Fernando Borraz & Nicolás González-Pampillón, 2017. "Assessing the distributive effects of minimum wage," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 1081-1112, November.
    9. Fernando Borraz & Nicolás Gonzalez Pampillón, 2011. "Assessing the Distributive Impact of More than Doubling the Minimum Wage: The Case of Uruguay," Documentos de Trabajo (working papers) 1711, Department of Economics - dECON.
    10. Paula Carrasco & Alejandro Cichevski & Ivone Perazzo, 2018. "Evolución reciente de las principales variables del mercado laboral uruguayo," Documentos de Trabajo (working papers) 18-09, Instituto de Economía - IECON.
    11. Ham, Andrés, 2018. "The Consequences of Legal Minimum Wages in Honduras," World Development, Elsevier, vol. 102(C), pages 135-157.
    12. Dieter Verhaest & Stef Adriaenssens, 2022. "Compensating wage differentials in formal and informal jobs," Kyklos, Wiley Blackwell, vol. 75(1), pages 106-126, February.
    13. Campos Vázquez, Raymundo Miguel & Rodas Milián, James Alexis, 2020. "El efecto faro del salario mínimo en la estructura salarial: evidencias para México," El Trimestre Económico, Fondo de Cultura Económica, vol. 87(345), pages 51-97, enero-mar.
    14. Maoyong Fan & Anita Alves Pena, 2019. "Do minimum wage laws affect those who are not covered? Evidence from agricultural and non-agricultural workers," PLOS ONE, Public Library of Science, vol. 14(10), pages 1-20, October.
    15. Meltem Dayioglu & Müşerref Küçükbayrak & Semih Tumen, 2022. "The impact of age-specific minimum wages on youth employment and education: a regression discontinuity analysis," International Journal of Manpower, Emerald Group Publishing Limited, vol. 43(6), pages 1352-1377, March.
    16. Jiménez, Bruno, 2023. "The Political economy of the minimum wage," Labour Economics, Elsevier, vol. 85(C).
    17. Sharon Katzkowicz & Gabriela Pedetti & Martina Querejeta & Marcelo Bérgolo, 2019. "Low-Skilled Workers and the Effects of Minimum Wage: New Evidence Based on a Density-Discontinuity Approach," Working Papers PMMA 2019-10, PEP-PMMA.
    18. Hazans, Mihails, 2011. "Informal Workers across Europe: Evidence from 30 Countries," IZA Discussion Papers 5871, Institute of Labor Economics (IZA).
    19. Alexandros Karakitsios & Manos Matsaganis, 2018. "Minimum Wage Effects on Poverty and Inequality," DEOS Working Papers 1801, Athens University of Economics and Business.
    20. Tito Boeri & Jan van Ours, 2013. "The Economics of Imperfect Labor Markets: Second Edition," Economics Books, Princeton University Press, edition 1, number 10142.
    21. Mansoor, Kashif & O'Neill, Donal, 2021. "Minimum wage compliance and household welfare: An analysis of over 1500 minimum wages in India," World Development, Elsevier, vol. 147(C).
    22. Mirco Tonin, 2013. "Underreporting of earnings and the minimum wage spike," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-18, December.
    23. Alexander Muravyev & Aleksey Oshchepkov, 2013. "Minimum wages and labor market outcomes: evidence from the emerging economy of Russia," HSE Working papers WP BRP 29/EC/2013, National Research University Higher School of Economics.
    24. Pieters, Janneke, 2013. "Youth Employment in Developing Countries," IZA Research Reports 58, Institute of Labor Economics (IZA).
    25. Muravyev, Alexander & Oshchepkov, Aleksey, 2013. "Minimum Wages, Unemployment and Informality: Evidence from Panel Data on Russian Regions," IZA Discussion Papers 7878, Institute of Labor Economics (IZA).

    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. Fernando Botelho & Vladimir Ponczek, 2011. "Segmentation in the Brazilian Labor Market," Economic Development and Cultural Change, University of Chicago Press, vol. 59(2), pages 437-463.
    2. Dragos Adascalitei & Sameer Khatiwada & Miguel Á. Malo & Pignatti Moran, 2015. "Employment protection and collective bargaining during the great recession: a comprehensive review of international evidence," Revista de Economía Laboral - Spanish Journal of Labour Economics, Asociación Española de Economía Laboral - AEET, vol. 12, pages 50-87.
    3. Boeri, Tito & Garibaldi, Pietro & Ribeiro, Marta, 2010. "Behind the Lighthouse Effect," IZA Discussion Papers 4890, Institute of Labor Economics (IZA).
    4. Fairris, David & Jonasson, Erik, 2016. "Determinants of Changing Informal Employment in Brazil, 2000–2010," MPRA Paper 71475, University Library of Munich, Germany.
    5. Menezes Filho, Naercio Aquino & Rodrigues, Eduardo Augusto, 2009. "Salário Mínimo e Desigualdade no Brasil, 1981-1999: Uma Abordagem Semiparamétrica," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 63(3), August.
    6. Neri, Marcelo Côrtes & Moura, Rodrigo Leandro de, 2005. "La institucionalidad del salario mínimo en Brasil," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 607, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    7. Belke, Ansgar & Gros, Daniel, 2002. "Monetary integration in the Southern Cone," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 323-349, December.
    8. Cysne, Rubens Penha, 2000. "A note on an application of Arrow's theorem: sufficient conditions for Lucas' inflation and welfare," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 397, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    9. Araujo, Luis Fernando Oliveira de & Ponczek, Vladimir Pinheiro, 2012. "Informal wages in an economy with active labor courts," Textos para discussão 294, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    10. Menezes-Filho, Naercio & Scorzafave, Luiz, 2009. "Employment and Inequality of Outcomes in Brazil," Insper Working Papers wpe_200, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    11. Pedro C Ferreira & Marcelo R Dos Santos & Flavio Cunha, 2010. "The Impact of Social Security Reform on Occupational and Retirement Behavior: A Quantitative Assessment for Brazil," 2010 Meeting Papers 977, Society for Economic Dynamics.

    More about this item


    Minimum wage; Lighthouse effect; Sorting;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General


    Access and download statistics


    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:cca:wpaper:193. 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: Giovanni Bert (email available below). General contact details of provider: .

    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.