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Minimum Wages and Informality

Author

Listed:
  • Ellora Derenoncourt

    (Princeton University)

  • François Gerard

    (UCL - University College London [UCL], IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies)

  • Lorenzo Lagos

    (Brown University)

  • Claire Montialoux

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique)

Abstract

How do minimum wages affect informality? We study the near-doubling of the real minimum wage from 2000 to 2009 in Brazil, where 46% of the workforce is informal. Using labor force surveys covering the informal sector, we show the minimum wage exhibits near full passthrough to informal employees working in formal firms, about half of all informal employees. The formal-to-informal reallocation elasticity with respect to the formal wage is small: -0.28. Our findings illustrate how minimum wages can positively affect living standards for workers thought beyond the reach of labor law, a sizable share of the workforce in developing economies.

Suggested Citation

  • Ellora Derenoncourt & François Gerard & Lorenzo Lagos & Claire Montialoux, 2025. "Minimum Wages and Informality," Sciences Po Economics Discussion Papers hal-05336350, HAL.
    • Handle: RePEc:hal:wpspec:hal-05336350
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05336350v1
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    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy

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