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Minimum Wages in Puerto Rico: Textbook Case of a Wage Floor?

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  • Alida Castillo Freeman
  • Richard B. Freeman

Abstract

This paper uses time series and cross-industry data on employment and wages in Puerto Rico to assess the effects of applying the U.S. minimum wage to the Puerto Rican labor market. We find that the U.S. minimum has a massive effect on the earnings distribution in Puerto Rico and that it has substantially lowered employment and altered the allocation of labor across industries. The reduction in employment is due to the fact that the minimum has a high level relative to average earnings or productivity, not to an especially high estimated elasticity of employment to the minimum. We claim that the results support the textbook model of the minimum wage more strongly than studies of the minimum in the U.S. because in Puerto Rico the U.S. minimum has "real bite."

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:3759
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    References listed on IDEAS

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    1. Brown, Charles, 1988. "Minimum Wage Laws: Are They Overrated?," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 133-145, Summer.
    2. Charles Brown & Curtis Gilroy & Andrew Kohen, 1983. "Time-Series Evidence of the Effect of the Minimum Wage on Youth Employment and Unemployment," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 3-31.
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    Cited by:

    1. Melanie Khamis, 2013. "Does the minimum wage have a higher impact on the informal than on the formal labour market? Evidence from quasi-experiments," Applied Economics, Taylor & Francis Journals, vol. 45(4), pages 477-495, February.
    2. Oren M. Levin-Waldman, 1998. "Exploring the Politics of the Minimum Wage," Macroeconomics 9805010, EconWPA.
    3. Squire, Lyn & Suthiwart-Narueput, Sethaput, 1997. "The Impact of Labor Market Regulations," World Bank Economic Review, World Bank Group, vol. 11(1), pages 119-143, January.
    4. 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.
    5. Gonzalo Castex H., 2012. "Aumento del Salario Mínimo y sus Efectos sobre el Mercado Laboral," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(2), pages 117-129, August.
    6. 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.
    7. Carlos Arango & Angélica Pachón, 2004. "Minimum Wages in Colombia: Holding the Middle with a Bite," BORRADORES DE ECONOMIA 003224, BANCO DE LA REPÚBLICA.
    8. Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, vol. 56(2), pages 245-255, February.
    9. Patricia Jones, 1998. "The impact of minimum wage legislation in developing countries where coverage is incomplete," CSAE Working Paper Series 1998-02, Centre for the Study of African Economies, University of Oxford.
    10. Patricia Jones, 1997. "The impact of minimum wage legislation in developing countries where coverage is incomplete," Economics Series Working Papers WPS/1998-02, University of Oxford, Department of Economics.
    11. Luis E Arango & Luz Adriana Flórez & Angélica M Arosemena, 2005. "El Tramo Corto de la Estructura a Plazo como Predictor de Expectativas de la Actividad Económica en Colombia," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 42(125), pages 79-101.
    12. Carlos A.Arango & Angélica Pachón, 2004. "Minimum Wages in Colombia: Holding the Middle With a Bite on the Poor," Borradores de Economia 280, Banco de la Republica de Colombia.
    13. Bell, Linda A., 1995. "The impact of minimum wages in Mexico and Colombia," Policy Research Working Paper Series 1514, The World Bank.
    14. Céspedes, Nikita, 2006. "Efectos del salario mínimo en el mercado laboral peruano," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 13.
    15. 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.
    16. Oren M. Levin-Waldman, 1998. "Linking the Minimum Wage to Productivity," Macroeconomics 9802015, EconWPA.
    17. Oren M. Levin-Waldman, "undated". "The Minimum Wage Can Be Raised: Lessons from the 1999 Levy Institute Survey of Small Business," Economics Policy Note Archive 99-6, Levy Economics Institute.
    18. Oren M. Levin-Waldman, 1999. "The Minimum Wage and Regional Wage Structure: Implications for Income Distribution," Economics Working Paper Archive wp_267, Levy Economics Institute.

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