IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/826.html
   My bibliography  Save this paper

Do workers in the informal sector benefit from cuts in the minimum wage?

Author

Listed:
  • Fiszbein, Ariel

Abstract

This paper analyzes the effect of a change in the minimum wage on the earnings of workers in the informal sector, who supposedly are not covered by minimum wage legislation. The standard view of the matter is that a reduction of the minimum wage, which increases employment in the formal sector, reduces the effective supply of labor to the informal sector increasing the wage at which the latter clears. Strong policy conclusions can be - and have been - derived from the standard view. Given that workers in the informal sector earn less than those in the formal sector, a reduction in the minimum wage should reduce income inequality between workers in the two sectors. Also, to the extent that most of the urban poor work in the informal sector, reducing the minimum wage could be an effective anti-poverty policy. This paper explores the possibility of a non-standard result following a different avenue. It discusses the role of labor reallocation and demand factors in determining the relationship between minimum wages and informal sector earnings.

Suggested Citation

  • Fiszbein, Ariel, 1992. "Do workers in the informal sector benefit from cuts in the minimum wage?," Policy Research Working Paper Series 826, The World Bank.
  • Handle: RePEc:wbk:wbrwps:826
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1992/01/01/000009265_3961002054414/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stiglitz, Joseph E., 1988. "Economic organization, information, and development," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 5, pages 93-160, Elsevier.
    2. Raaj Kumar Sah & Joseph E. Stiglitz, 1983. "The Economics of Price Scissors," NBER Working Papers 1156, National Bureau of Economic Research, Inc.
    3. Edward M. Gramlich, 1976. "Impact of Minimum Wages on Other Wages, Employment, and Family Incomes," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 409-462.
    4. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 87-104, August.
    5. Fallon, Peter R. & Riveros, Luis A., 1989. "Adjustment and the labor market," Policy Research Working Paper Series 214, The World Bank.
    6. Tokman, Víctor E., 1978. "Informal-formal sector interrelationships," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), June.
    7. Tokman, Víctor E., 1988. "Urban employment: research and policy in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    8. Johnson, William R & Browning, Edgar K, 1983. "The Distributional and Efficiency Effects of Increasing the Minimum Wage: A Simulation," American Economic Review, American Economic Association, vol. 73(1), pages 204-211, March.
    9. François Bourguignon, 1990. "Growth and Inequality in the Dual Model of Development: The Role of Demand Factors," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 215-228.
    10. Lopez, Ramon E. & Riveros, Luis A., 1989. "Macroeconomic adjustment and the labor market in four Latin American countries," Policy Research Working Paper Series 335, The World Bank.
    11. Santos Alvite, Eduardo, 1989. "Poverty in Ecuador," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    12. Chaudhuri, Tamal Datta, 1989. "A theoretical analysis of the informal sector," World Development, Elsevier, vol. 17(3), pages 351-355, March.
    13. Sebastian Edwards & Alejandra Cox Edwards, 1990. "Labor Market Distortions and Structural Adjustments in Developing Countries," NBER Working Papers 3346, National Bureau of Economic Research, Inc.
    14. Cole, William E & Sanders, Richard D, 1985. "Internal Migration and Urban Employment in the Third World," American Economic Review, American Economic Association, vol. 75(3), pages 481-494, June.
    15. Berry, A. & Sabot, R. H., 1978. "Labour market performance in developing countries: A survey," World Development, Elsevier, vol. 6(11-12), pages 1199-1242.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Nora Lustig & Darryl McLeod, 1995. "Salario mínimo y pobreza: un análisis de corte transversal para países en desarrollo," Coyuntura Social 013219, Fedesarrollo.
    3. Katherine Terrell & Fatma El Hamidi, 2001. "The Impact of Minimum Wages on Wage Inequality and Employment in the Formal and Informal Sector in Costa Rica," William Davidson Institute Working Papers Series 479, William Davidson Institute at the University of Michigan.

    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. Nora Lustig & Darryl McLeod, 1995. "Salario mínimo y pobreza: un análisis de corte transversal para países en desarrollo," Coyuntura Social 013219, Fedesarrollo.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2101-2163 is not listed on IDEAS
    3. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
    4. Lemos Sara, 2005. "Political Variables as Instruments for the Minimum Wage," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-33, December.
    5. Lonnie Stevans & David Sessions, 2001. "Minimum Wage Policy and Poverty in the United States," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(1), pages 65-75.
    6. Pandelis Mitsis, 2019. "The Impact of the Minimum Wage on Wages and Work in Cyprus," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 13(2), pages 72-101, December.
    7. Sara Lemos, 2004. "A Menu of Minimum Wage Variables for Evaluating Wages and Employment Effects: Evidence from Brazil," Discussion Papers in Economics 04/3, Division of Economics, School of Business, University of Leicester.
    8. 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.
    9. Palle S. Andersen, 1991. "Labour market developments in developing countries," BIS Working Papers 16, Bank for International Settlements.
    10. Caballero, Ricardo J. & Hammour, Mohamad L., 1996. "On the ills of adjustment," Journal of Development Economics, Elsevier, vol. 51(1), pages 161-192, October.
    11. Ravi Kanbur & Gary Fields, 2005. "Minimum Wages And Poverty," Working Papers id:169, eSocialSciences.
    12. Taiwo Aderemi, 2017. "Minimum Wage and the Working Poor in Nigeria: Is there a Link?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 60(3), pages 481-499, September.
    13. Lemos, Sara, 2004. "The Effects of the Minimum Wage in the Formal and Informal Sectors in Brazil," IZA Discussion Papers 1089, Institute of Labor Economics (IZA).
    14. Gustman, Alan L & Steinmeier, Thomas L, 1988. "A Model for Analyzing Youth Labor Market Policies," Journal of Labor Economics, University of Chicago Press, vol. 6(3), pages 376-396, July.
    15. Boeri, Tito & Garibaldi, Pietro & Ribeiro, Marta, 2010. "Behind the Lighthouse Effect," IZA Discussion Papers 4890, Institute of Labor Economics (IZA).
    16. David Neumark & Mark Schweitzer & William Wascher, 2005. "The Effects of Minimum Wages on the Distribution of Family Incomes: A Nonparametric Analysis," Journal of Human Resources, University of Wisconsin Press, vol. 40(4), pages 867-894.
    17. Alan L. Gustman & Thomas L. Steinmeier, 1980. "Labor Markets and Evaluations of Vocational Training Programs in the Public High Schools - Toward a Framework for Analysis," NBER Working Papers 0478, National Bureau of Economic Research, Inc.
    18. Groisman, Fernando & Boffi, Santiago & Calero, Analía & Cuba, María Soledad & Liniado, Julia & Sconfienza, María Eugenia & Vergara Parra, Albano, 2015. "Social protection to the informal sector: the role of minimum wage and income transfer policies," MPRA Paper 72822, University Library of Munich, Germany.
    19. Marit Hinnosaar & Tairi Room, 2003. "The impact of minimum wage on the labour market in Estonia: an empirical analysis," Bank of Estonia Working Papers 2003-8, Bank of Estonia, revised 12 Oct 2003.
    20. Attakrit Leckcivilize, 2015. "Does the minimum wage reduce wage inequality? Evidence from Thailand," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-23, December.
    21. Carter, Thomas J., 1998. "Minimum wage laws: what does an employment increase imply about output and welfare?," Journal of Economic Behavior & Organization, Elsevier, vol. 36(4), pages 473-485, September.

    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:wbk:wbrwps:826. 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: (Roula I. Yazigi). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.