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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

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 1922, Departamento Nacional de Planeación.
    • Handle: RePEc:col:000118:001922
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    References listed on IDEAS

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    Cited by:

    1. Grimshaw, Damian., 2011. "What do we know about low wage work and low wage workers? : Analysing the definitions, patterns, causes and consequences in international perspective," ILO Working Papers 994648583402676, International Labour Organization.
    2. Enrique PINZON GARCIA & Oscar M. VALENCIA ARANA, 2006. "The Determinants of Colombian Firm´s Debt-Asset Ratio (1997-2003)," Archivos de Economía 3582, Departamento Nacional de Planeación.
    3. Maria Otilia Orozco, 2005. "Colombia's Higher Education Quality Control System and Potential for Further Development," Archivos de Economía 2139, Departamento Nacional de Planeación.
    4. Benassi, Chiara., 2011. "The implementation of minimum wage : challenges and creative solutions," ILO Working Papers 994629883402676, International Labour Organization.
    5. repec:ilo:ilowps:464858 is not listed on IDEAS
    6. Benassi, Chiara, 2011. "The implementation of minimum wage: Challenges and creative solutions," GLU Working Papers 12, Global Labour University (GLU).
    7. repec:ilo:ilowps:462988 is not listed on IDEAS

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    Keywords

    Salario Mínimo;

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