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Minimum Wages and the Welfare of Workers in Honduras

Author

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  • Gindling, T. H.

    () (University of Maryland, Baltimore County)

  • Terrell, Katherine

    (University of Michigan)

Abstract

Taking advantage of a complex minimum wage structure in Honduras, this paper examines how changes in minimum wages over the 1990-2004 period affect unemployment as well as the employment and average wages of workers in different sectors of the economy: medium and large-scale firms v. small firms in the private sector (where minimum wage legislation applies) and civil servants and self-employed workers (where it does not apply). The evidence suggests that minimum wages are effectively enforced only in medium and large-scale firms, where a 1% increase in the minimum wage leads to an increase of 0.29% in the average wage and a reduction in employment of -0.46%. We find that increases in the private sector minimum wage are emulated in public sector wages, but there are no disemployment effects there. There is some evidence that a higher minimum wage may increase unemployment. There are no discernable effects of minimum wages on the wages of workers in small-firms or the self-employed. The positive impact of higher minimum wages on average wages is greatest for the primary educated in large private firms; but this group also suffers a very large disemployment effect. We conclude that, even in the sector where minimum wages are enforced and even under our upper bound estimate of the effect on the wages of workers, the welfare – the total earnings – of low-paid workers in the large-firm covered sector falls with higher minimum wages.

Suggested Citation

  • Gindling, T. H. & Terrell, Katherine, 2007. "Minimum Wages and the Welfare of Workers in Honduras," IZA Discussion Papers 2892, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp2892
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    References listed on IDEAS

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    1. James J. Heckman & Carmen Pagés, 2004. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Books, National Bureau of Economic Research, Inc, number heck04-1.
    2. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier.
    3. Gilles Saint-Paul, 1994. "Do Labor Market Rigidities Fulfill Distributive Objectives?: Searching for the Virtues of the European Model," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 624-642, December.
    4. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    5. William Maloney & Jairo Mendez, 2004. "Measuring the Impact of Minimum Wages. Evidence from Latin America," NBER Chapters,in: Law and Employment: Lessons from Latin America and the Caribbean, pages 109-130 National Bureau of Economic Research, Inc.
    6. Mariano Bosch, 2006. "Job Creation and Job Destruction in the Presence of Informal Labour Markets," CEP Discussion Papers dp0761, Centre for Economic Performance, LSE.
    7. Martin Rama, 2002. "Globalization and Workers in Developing Countries," Economics Study Area Working Papers 41, East-West Center, Economics Study Area.
    8. Saint-Paul, Gilles, 1994. "Searching for the Virtues of the European Model," CEPR Discussion Papers 950, C.E.P.R. Discussion Papers.
    9. Freeman, Richard B, 1996. "The Minimum Wage as a Redistributive Tool," Economic Journal, Royal Economic Society, vol. 106(436), pages 639-649, May.
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    Cited by:

    1. Paqueo, Vicente B. & Orbeta, Aniceto Jr. C. & Lanzona, Leonardo A., 2016. "The Impact of Legal Minimum Wages on Employment, Income, and Poverty Incidence in the Philippines," Discussion Papers DP 2016-54, Philippine Institute for Development Studies.

    More about this item

    Keywords

    employment; minimum wage; wage; Central America; unemployment; Honduras;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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