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The Impact of Minimum Wages on Wages, Work and Poverty in Nicaragua

Listed author(s):
  • Alaniz, Enrique

    ()

    (Fundación Internacional para el Desafío Económico Global (FIDEG))

  • Gindling, T. H.

    ()

    (University of Maryland, Baltimore County)

  • Terrell, Katherine

    (University of Michigan)

We use an individual-level panel data set to study the impact of changes in legal minimum wages on a host of labor market outcomes in Nicaragua including: a) wages and employment, b) transitions of workers across jobs (in the covered and uncovered sectors) and employment status (unemployment and out of the labor force), and c) transitions into and out of poverty. We find that changes in the legal minimum wage affect only those workers whose initial wage (before the change in minimum wages) is close to the minimum. For example, increases in the legal minimum wage lead to significant increases in the wages and decreases in employment of private covered sector workers who have wages within 20% of the minimum wage before the change, but have no significant impact on wages in other parts of the distribution. The estimates from the employment transition equations suggest that the decrease in covered private sector employment is due to a combination of layoffs and reductions in hiring. Most workers who lose their jobs in the covered private sector as a result of higher legal minimum wages leave the labor force or go into unpaid family work; a smaller proportion find work in the public sector. Our analysis of the relationship between the minimum wage and household income finds: a) increases in legal minimum wages increase the probability that a poor worker's family will move out of poverty, and b) increases in legal minimum wages are more likely to reduce the incidence of poverty if they impact the head of the household rather than the non-head.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5702.

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Length: 49 pages
Date of creation: May 2011
Publication status: published in: Labour Economics, 2011, 18 (S1), S45-S59
Handle: RePEc:iza:izadps:dp5702
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  1. T. H. Gindling & Katherine Terrell, 2004. "The Effects of Multiple Minimum Wages Throughout the Labor Market," William Davidson Institute Working Papers Series 2004-701, William Davidson Institute at the University of Michigan.
  2. Bosch, Mariano & Manacorda, Marco, 2010. "Minimum Wages and Earnings Inequality in Urban Mexico," CEPR Discussion Papers 7882, C.E.P.R. Discussion Papers.
  3. Neumark, David & Cunningham, Wendy & Siga, Lucas, 2006. "The effects of the minimum wage in Brazil on the distribution of family incomes: 1996-2001," Journal of Development Economics, Elsevier, vol. 80(1), pages 136-159, June.
  4. William F. Maloney & Jairo Nunez Mendez, 2003. "Measuring the Impact of Minimum Wages: Evidence from Latin America," NBER Working Papers 9800, National Bureau of Economic Research, Inc.
  5. Claudio E. Montenegro & Carmen Pagés, 2003. "Who Benefits from Labor Market Regulations?: Chile 1960-1998," IDB Publications (Working Papers) 4126, Inter-American Development Bank.
  6. 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.
  7. Wendy Cunningham, 2007. "Minimum Wages and Social Policy : Lessons from Developing Countries," World Bank Publications, The World Bank, number 6760.
  8. 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.
  9. Addison, John T. & Blackburn, McKinley L., 1998. "Minimum Wages and Poverty," ZEW Discussion Papers 98-42, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Gindling, T. H. & Terrell, Katherine, 2004. "Legal Minimum Wages and the Wages of Formal and Informal Sector Workers in Costa Rica," IZA Discussion Papers 1018, Institute for the Study of Labor (IZA).
  11. Tom Hertz, 2005. "The Effect of Minimum Wages on the Employment and Earnings of South Africa's Domestic Service Workers," Upjohn Working Papers and Journal Articles 05-120, W.E. Upjohn Institute for Employment Research.
  12. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  13. 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.
  14. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
  15. Andalón, Mabel & Pagés, Carmen, 2008. "Minimum Wages in Kenya," IZA Discussion Papers 3390, Institute for the Study of Labor (IZA).
  16. Lustig, N. & Mcleod, D., 1996. "Minimum Wages and Poverty in Developing Countries : Some Empirical Evidence," Papers 125, Brookings Institution - Working Papers.
  17. Carlos Arango & Angélica Pachón, 2004. "Minimum Wages in Colombia: Holding the Middle with a Bite," BORRADORES DE ECONOMIA 003224, BANCO DE LA REPÚBLICA.
  18. Sara Lemos, 2006. "Minimum Wage Effects in a Developing Country," Discussion Papers in Economics 06/1, Department of Economics, University of Leicester.
  19. Gindling, T.H. & Terrell, Katherine, 2010. "Minimum Wages, Globalization, and Poverty in Honduras," World Development, Elsevier, vol. 38(6), pages 908-918, June.
  20. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, September.
  21. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
  22. Gindling, T.H. & Terrell, Katherine, 2005. "The effect of minimum wages on actual wages in formal and informal sectors in Costa Rica," World Development, Elsevier, vol. 33(11), pages 1905-1921, November.
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