The Effect of the Minimum Wage on Employment in Brazil

During the economic boom of the early 2000s, most Latin American countries increased their minimum wages. In Brazil, the real minimum wage increased by upwards of 60 percent from 2003 through 2012. In this paper, we take advantage of administrative data to explore whether the minimum wage resulted in negative employment impacts in Brazil's formal sector. We explore different measures of the incidence of the minimum wage across states and examine various empirical specifications, yet find no significant disemployment impacts associated with this policy. On the other hand, we find significant negative impacts in microregions which were less exposed to the commodities boom. Since empirical strategies relying on incidence measures are inherently limited, we additionally exploit the introduction of a 2000 law which allowed states to implement regional wage floors. While these floors vary in scope and size, we find that the five states which implemented this policy included provisions directly targeting workers in the accommodation and restaurant sector. As a result, we adapt Dube, Lester and Reich's (2010) empirical strategy to Brazil and estimate the impact of these floors on employment in this sector by exploiting variation in microregions straddling state borders. As in our initial estimates, we find no significant negative employment impacts arising from the wage floors, indicating that during the early 2000s, the minimum wage did not result in negative employment impacts in Brazil's formal sector. Nonetheless, we caution that this result may not hold in a recessionary context, as shown in our commodity boom-incidence results.