IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp3911.html
   My bibliography  Save this paper

Does the Minimum Wage Have a Higher Impact on the Informal than on the Formal Labor Market? Evidence from Quasi-Experiments

Author

Listed:
  • Khamis, Melanie

    (Wesleyan University)

Abstract

This paper investigates a puzzle in the literature on labor markets in developing countries: labor legislations not only have an impact on the formal labor market but also an impact on the informal sector. It has even been argued that the impact on the informal sector in the case of the minimum wage is stronger than on the formal sector. Using quasi-experiments of minimum wage changes and thereby exploiting geographical variation of the minimum wage bite, I find evidence for this hypothesis. Informal workers, workers without social security contribution, experienced significant wage increases when the minimum wage was raised while formal workers did not. This result highlights that non-compliance with one labor legislation, the social security contribution, does not necessarily imply non-compliance to other labor laws such as the minimum wage.

Suggested Citation

  • Khamis, Melanie, 2008. "Does the Minimum Wage Have a Higher Impact on the Informal than on the Formal Labor Market? Evidence from Quasi-Experiments," IZA Discussion Papers 3911, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3911
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp3911.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pablo Fajnzylber, 2001. "Minimum Wage Effects Throughout the Wage Distribution: Evidence from Brazil's Formal and Informal Sectors," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting] 098, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    2. Alatas, Vivi & Cameron, Lisa, 2003. "The impact of minimum wages on employment in a low income country : an evaluation using the difference-differences approach," Policy Research Working Paper Series 2985, The World Bank.
    3. Claudio Montenegro & Carmen Pagés, 2005. "Who Benefits from Labor Market Regulations? Chile 1960-1998," Central Banking, Analysis, and Economic Policies Book Series, in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.),Labor Markets and Institutions, edition 1, volume 8, chapter 4, pages 077-114, Central Bank of Chile.
    4. Pablo Fajnzylber, 2001. "Minimum wage effects throughout the wage distribution: evidence from Brazil’s formal and informal sectors," Textos para Discussão Cedeplar-UFMG td151, Cedeplar, Universidade Federal de Minas Gerais.
    5. T. H. Gindling & Katherine Terrell, 2004. "Legal Minimum Wages and the Wages of Formal and Informal Sector Workers in Costa Rica," UMBC Economics Department Working Papers 04-102, UMBC Department of Economics.
    6. Sara Lemos, 2004. "A Menu Of Minimum Wage Variables For Evaluating Wages and Employment Effects: Evidence From Brazil," Labor and Demography 0403009, University Library of Munich, Germany.
    7. Kristensen, Nicolai & Cunningham, Wendy, 2006. "Do minimum wages in Latin America and the Caribbean matter ? Evidence from 19 countries," Policy Research Working Paper Series 3870, The World Bank.
    8. Sara lemos, 2004. "The Effects of the Minimum Wage in the Formal and Informal Sectors in Brazil," Discussion Papers in Economics 04/8, Division of Economics, School of Business, University of Leicester.
    9. Derk Bienen, 2002. "Mindestlohnreformen in Südamerika – ökonomische Rechtfertigung und praktische Umsetzung," Ibero America Institute for Econ. Research (IAI) Discussion Papers 090, Ibero-America Institute for Economic Research.
    10. Alida Castillo Freeman & Richard B. Freeman, 1991. "Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor?," NBER Working Papers 3759, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Betcherman, Gordon, 2014. "Labor market regulations : what do we know about their impacts in developing countries ?," Policy Research Working Paper Series 6819, The World Bank.
    2. Gindling, T.H. & Terrell, Katherine, 2009. "Minimum wages, wages and employment in various sectors in Honduras," Labour Economics, Elsevier, vol. 16(3), pages 291-303, June.
    3. World Bank, 2013. "Minimum Wage Policy : Lessons with a Focus on the ASEAN Region," World Bank Publications - Reports 16687, The World Bank Group.
    4. Haroon Bhorat & Ravi Kanbur & Benjamin Stanwix, 2017. "Minimum Wages in Sub-Saharan Africa: A Primer," The World Bank Research Observer, World Bank, vol. 32(1), pages 21-74.
    5. Boeri, Tito & Garibaldi, Pietro & Ribeiro, Marta, 2010. "Behind the Lighthouse Effect," IZA Discussion Papers 4890, Institute of Labor Economics (IZA).
    6. Neumark, David & Munguía Corella, Luis Felipe, 2021. "Do minimum wages reduce employment in developing countries? A survey and exploration of conflicting evidence," World Development, Elsevier, vol. 137(C).
    7. Gudibande, Rohan Ravindra & Jacob, Arun, 2020. "Minimum wages for domestic workers: impact evaluation of the Indian experience," World Development, Elsevier, vol. 130(C).
    8. Gindling, T.H. & Terrell, Katherine, 2010. "Minimum Wages, Globalization, and Poverty in Honduras," World Development, Elsevier, vol. 38(6), pages 908-918, June.
    9. Fernando Borraz & Nicolás González, 2009. "Minimum Wage: Empirical evidence for Uruguay," Documentos de trabajo 2009003, Banco Central del Uruguay.
    10. Gindling, T.H. & Terrell, Katherine, 2007. "The effects of multiple minimum wages throughout the labor market: The case of Costa Rica," Labour Economics, Elsevier, vol. 14(3), pages 485-511, June.
    11. Fernando Alberto Groisman & Albano Blas Vergara & Analía Calero & Julia Liniado & María Eugenia Sconfienza & Maria Soledad Cubas & Santiago Boffi, 2015. "Social Protection to the Informal Sector: The Role of Minimum Wage and Income Transfer Policies," Working Papers PMMA 2015-10, PEP-PMMA.
    12. David Neumark & Luis Felipe Munguia Corella, 2019. "Do Minimum Wages Reduce Employment in Developing Countries? A Survey and Exploration of Conflicting Evidence," NBER Working Papers 26462, National Bureau of Economic Research, Inc.
    13. Fernando Borraz & Nicolás González-Pampillón, 2017. "Assessing the distributive effects of minimum wage," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 1081-1112, November.
    14. Eugenia Fotoniata & Thomas Moutos, 2013. "Product Quality, Informality, and Child Labor," Review of Development Economics, Wiley Blackwell, vol. 17(2), pages 268-283, May.
    15. Calavrezo, Oana & Pelek, Selin, 2011. "Qui sont les salariés payés au niveau du salaire minimum? Une analyse empirique à partir de données turques," GIAM Working Papers 11-2, Galatasaray University Economic Research Center, revised 13 Feb 2011.
    16. Arnab K. Basu & Nancy H. Chau & Ravi Kanbur, 2015. "Contractual Dualism, Market Power and Informality," Economic Journal, Royal Economic Society, vol. 125(589), pages 1534-1573, December.
    17. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," NBER Working Papers 12663, National Bureau of Economic Research, Inc.
    18. Carla Canelas, 2014. "Minimum Wage and Informality in Ecuador," WIDER Working Paper Series wp-2014-006, World Institute for Development Economic Research (UNU-WIDER).
    19. Campos Vázquez, Raymundo Miguel & Rodas Milián, James Alexis, 2020. "El efecto faro del salario mínimo en la estructura salarial: evidencias para México," El Trimestre Económico, Fondo de Cultura Económica, vol. 87(345), pages 51-97, enero-mar.
    20. Mr. Christopher S Adam & Mr. Edward F Buffie, 2020. "The Minimum Wage Puzzle in Less Developed Countries: Reconciling Theory and Evidence," IMF Working Papers 2020/023, International Monetary Fund.

    More about this item

    Keywords

    minimum wages; quasi-experiments; informal economy;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp3911. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.