Do workers in the informal sector benefit from cuts in the minimum wage?
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.
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.
| Length: | |
| Date of creation: | 31 Jan 1992 |
| Date of revision: | |
| Handle: | RePEc:wbk:wbrwps:826 |
| Contact details of provider: | Postal: Phone: (202) 477-1234 Web page: http://www.worldbank.org/Email: 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.:
- Bourguignon, Francois, 1990. "Growth and Inequality in the Dual Model of Development: The Role of Demand Factors," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 215-28, April.
- Berry, A. & Sabot, R. H., 1978. "Labour market performance in developing countries: A survey," World Development, Elsevier, vol. 6(11-12), pages 1199-1242.
- 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.
- 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.
- Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S87-104, August.
- 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 204-11, March.
- 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.
- Stiglitz, J.E., 1988. "Economic Organization, Information And Development," Papers 21, Princeton, Woodrow Wilson School - Discussion Paper.
- 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.
- Fallon, Peter R. & Riveros, Luis A., 1989. "Adjustment and the labor market," Policy Research Working Paper Series 214, The World Bank.
- Chaudhuri, Tamal Datta, 1989. "A theoretical analysis of the informal sector," World Development, Elsevier, vol. 17(3), pages 351-355, March.
- 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 481-94, June.
- Raaj Kumar Sah & Joseph E. Stiglitz, 1983. "The Economics of Price Scissors," NBER Working Papers 1156, National Bureau of Economic Research, Inc.
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: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)
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.