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A Minimum Wage Increase Can Have an Adverse Distributional Impact:The case of Colombia

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  • Diego F. ANGEL-URDINOLA

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Abstract

A rise in the minimum wage may contribute to decrease earnings inequality by promoting larger wage increases for workers in the low tail of the wage distribution, but it may also increase inequality by promoting layoffs. This paper uses a semiparametric model to analyze the impact on inequality of a 6.3 percent increase in the real minimum wage in Colombia between 1995 and 1999, a period of economic downturn. Simulations suggest that if the employment effects of the minimum wage increase are ignored, the underlying policy would contribute to reduce earnings inequality. On the contrary, by considering the drop in wages of those who lost their jobs, simulations suggest that the policy in question would increase earnings inequality under some assumptions about the employment elasticity of the minimum wage and the new level of earnings unemployed workers rely upon.

Suggested Citation

  • Diego F. ANGEL-URDINOLA, 2004. "A Minimum Wage Increase Can Have an Adverse Distributional Impact:The case of Colombia," ARCHIVOS DE ECONOMÍA 001922, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  • Handle: RePEc:col:000118:001922
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    File URL: https://colaboracion.dnp.gov.co/CDT/Estudios%20Econmicos/247.pdf
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    References listed on IDEAS

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    1. Roberto Steiner & Jairo Núñez M. & Ximena Cadena O. & Renata Pardo P., 2002. "¿Cuáles colegios ofrecen mejor educación en Colombia?," COYUNTURA SOCIAL 012943, FEDESARROLLO.
    2. Juan Carlos ECHEVERRY GARZON, 2002. "El siglo del modelo de desarrollo," ARCHIVOS DE ECONOMÍA 002552, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    3. Andrés ESCOBAR ARANGO & Gustavo Adolfo HERNANDEZ & Gabriel PIRAQUIVE & Juan Mauricio RAMIREZ, 2003. "Elementos para el análisis de incidencia tributaria," ARCHIVOS DE ECONOMÍA 002571, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    4. Ortega, Juan Ricardo & Piraquive, Gabriel Armando & Hernandez, Gustavo Adolfo & Soto, Carolina & Prada, Sergio & Ramirez, Juan Mauricio, 2000. "Incidencia fiscal de los incentivos tributarios
      [Fiscal Incidence of tax incentives]
      ," MPRA Paper 14016, University Library of Munich, Germany.
    5. Fernando MESA PARRA, 2001. "Strategic Trade Policy and Exchange Rate Uncertainty," ARCHIVOS DE ECONOMÍA 003527, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    6. Diego F. Angel-Urdinola & Quentin Wodon, 2006. "The Gender Wage Gap and Poverty in Colombia," LABOUR, CEIS, vol. 20(4), pages 721-739, December.
    7. Castro Carlos Alberto, 2001. "Eficiencia-X en el sector bancario colombiano," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, September.
    8. Francisco Javier LASSO VALDERRAMA, 2002. "Economías de escala en los hogares y pobreza," ARCHIVOS DE ECONOMÍA 002399, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
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    1. repec:ilo:ilowps:462988 is not listed on IDEAS
    2. repec:ilo:ilowps:464858 is not listed on IDEAS

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    Keywords

    Salario Mínimo;

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