IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

The Labor Impact of Minimum Wages: A Method for Estimating the Effect in Emerging Economies using Chilean Panel Data

Listed author(s):
  • Nicolás Grau
  • Oscar Landerretche
Registered author(s):

    We develop and use a statistical matching technique to construct a panel data set from the Chilean National Employment Survey; and then use this panel to test the short term impacts of minimum wage increases during the 1996-2005 period.We estimate wage increase effects for the treated group (people earning wages between ex ante an ex post minimum wages), the hours worked and the employment effects for this group. We also estimate the effect on the proba- bility of obtaining a job for a theoretical treated group of unemployed and inactive workers constructed by estimating their likely wage in the case that they found one. We then estimate the integral of these three effects (wage increase, wage loss and lower probability of obtaining a job). We find that minimum wage increases do have a significant impact on the wages of the treated group, hence the suspicion that they are somehow made irrelevant by informal practices in Chilean labor markets seems to be unfunded. We find that there is a significant negative effect on the probability of staying employed, a negative effect on hours worked and a signifi- cant negative effect on the probability of finding the job. We find that the integral of the three effects is positive and has statistical significance. We conclude that, in general, minimum wage increases in Chile during the aforementioned period have increased the real income of treated and potentially treated workers. However, we also find that there is a redistribution of income among these workers in favor of currently employed workers. We submit our results to several robustness checks including a variety of definitions of income and wages, a continuous changing control group, a “dif-in-dif” approach and a pressure and distance.approach. We conclude that, if anything, minimum wage increases have generated real income redistribution towards the treated workers as well as among them in Chile.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp329.

    in new window

    Length: 52 pages
    Date of creation: Jan 2011
    Handle: RePEc:udc:wpaper:wp329
    Contact details of provider: Web page:

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    in new window

    1. John M. Abowd & Francis Kramarz & Thomas Lemieux & David N. Margolis, 2000. "Minimum Wages and Youth Employment in France and the United States," NBER Chapters,in: Youth Employment and Joblessness in Advanced Countries, pages 427-472 National Bureau of Economic Research, Inc.
    2. Richard Dickens & Alan Manning, 2004. "Has the national minimum wage reduced UK wage inequality?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 167(4), pages 613-626.
    3. Janet Currie & Bruce C. Fallick, 1996. "The Minimum Wage and the Employment of Youth Evidence from the NLSY," Journal of Human Resources, University of Wisconsin Press, vol. 31(2), pages 404-428.
    4. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
    5. Mark B. Stewart, 2004. "The Impact of the Introduction of the U.K. Minimum Wage on the Employment Probabilities of Low-Wage Workers," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 67-97, March.
    6. Lemos, Sara, 2004. "The Effect of the Minimum Wage on Prices," IZA Discussion Papers 1072, Institute for the Study of Labor (IZA).
    7. Claudio Sapelli, 1996. "Modelos para Pensar el Mercado de Trabajo: Una Revisión de la Literatura Chilena," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(99), pages 251-276.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:udc:wpaper:wp329. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mohit Karnani)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.