IDEAS home Printed from https://ideas.repec.org/p/wdi/papers/2004-701.html
   My bibliography  Save this paper

The Effects of Multiple Minimum Wages Throughout the Labor Market

Author

Listed:
  • T. H. Gindling
  • Katherine Terrell

Abstract

This paper investigates the effects of legal minimum wages on wages, employment, hours worked and monthly earnings among workers covered by minimum wage legislation as well as those for whom it does not apply (the uncovered sector) in Costa Rica. This country???s large uncovered sector and complex minimum wage policy, which has for decades set numerous wages throughout the wage distribution, provide a stimulating counterpoint to the U.S. framework for the analysis of the impact of minimum wages. We find that legal minimum wages have a significant positive effect on the wages of workers in the covered sector (with an elasticity of 0.10) but no effect on wages of workers in the uncovered sector. We also find that a 10% increase in minimum wages lowers employment in the covered sector by 1.09% and decreases the average number of hours worked of those who remain in the covered sector by about 0.6%. Finally, we show that despite the wide range of minimum wages, the largest impact on the wages and employment of covered sector workers is in the lower half of the distribution.

Suggested Citation

  • 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.
    • Handle: RePEc:wdi:papers:2004-701
    as

    Download full text from publisher

    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/40087/3/wp701.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Tauchen, George E, 1981. "Some Evidence on Cross-Sector Effects of the Minimum Wage," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 529-547, June.
    2. Borjas, George J. & Freeman, Richard B. (ed.), 1992. "Immigration and the Work Force," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226066332, December.
    3. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
    4. Fatma El-Hamidi & Katherine Terrell, 2002. "The Impact of Minimum Wages on Wage Inequality and Employment in the Formal and Informal Sector in Costa Rica," International Economic Association Series, in: Richard B. Freeman (ed.), Inequality Around the World, chapter 8, pages 188-203, Palgrave Macmillan.
    5. Pablo Fajnzylber, 2001. "Minimum Wage Effects Throughout the Wage Distribution: Evidence from Brazil's Formal and Informal Sectors," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting] 098, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1998. "Minimum Wages and Employment in France and the United States," Papiers du Laboratoire de Microéconomie Appliquée 1998-12, Université Panthéon-Sorbonne (Paris 1).
    7. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163, Elsevier.
    8. Bell, Linda A, 1997. "The Impact of Minimum Wages in Mexico and Colombia," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 102-135, July.
    9. Kertesi, Gabor & Köllő, János, 2003. "Fighting “Low Equilibria” by Doubling the Minimum Wage? Hungary’s Experiment," IZA Discussion Papers 970, Institute of Labor Economics (IZA).
    10. 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.
    11. 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.
    12. Alan B. Krueger, 1994. "The Effect of the Minimum Wage When It Really Bites: A Reexamination of the Evidence from Puerto Rico," NBER Working Papers 4757, National Bureau of Economic Research, Inc.
    13. Dickens, Richard & Machin, Stephen & Manning, Alan, 1999. "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 1-22, January.
    14. Pablo Fajnzylber, 2001. "Minimum wage effects throughout the wage distribution: evidence from Brazil’s formal and informal sectors," Textos para Discussão Cedeplar-UFMG td151, Cedeplar, Universidade Federal de Minas Gerais.
    15. Sara Lemos, 2004. "The Effects Of The Minimum Wage On Wages And Employment In Brazil - A Menu Of Minimum Wage Variables," Labor and Demography 0403008, University Library of Munich, Germany.
    16. Alan Krueger, 1994. "The Effect of the Minimum Wage When It Really Bites: A Reexamination of the Evidence from Puerto Rico," Working Papers 709, Princeton University, Department of Economics, Industrial Relations Section..
    17. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    18. Neumark, D. & Schweitzer, M. & Wascher, W., 1999. "The Effect of Minimum Wages Throughout the Wage Distribution," Papers 9919, London School of Economics - Centre for Labour Economics.
    19. Ashenfelter, Orley & Smith, Robert S, 1979. "Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 333-350, April.
    20. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-979, July.
    21. Alida Castillo-Freeman & Richard B. Freeman, 1992. "When the Minimum Wage Really Bites: The Effect of the U.S.-Level Minimum on Puerto Rico," NBER Chapters, in: Immigration and the Work Force: Economic Consequences for the United States and Source Areas, pages 177-212, National Bureau of Economic Research, Inc.
    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. Brusentsev, Vera & Newhouse, David & Vroman, Wayne, 2012. "Severance pay compliance in Indonesia," Policy Research Working Paper Series 5933, The World Bank.
    2. Phan Kim Dung, 2017. "The effects of minimum wage hikes on employment and wages in Vietnam’s micro, small, and medium enterprises," WIDER Working Paper Series 095, World Institute for Development Economic Research (UNU-WIDER).
    3. Haroon Bhorat & Ravi Kanbur & Benjamin Stanwix, 2017. "Minimum Wages in Sub-Saharan Africa: A Primer," The World Bank Research Observer, World Bank, vol. 32(1), pages 21-74.
    4. Gindling, T.H. & Terrell, Katherine, 2010. "Minimum Wages, Globalization, and Poverty in Honduras," World Development, Elsevier, vol. 38(6), pages 908-918, June.
    5. Andalón, Mabel & Pagés, Carmen, 2008. "Minimum Wages in Kenya," IZA Discussion Papers 3390, Institute of Labor Economics (IZA).
    6. Phan Kim Dung, 2017. "The effects of minimum wage hikes on employment and wages in Vietmam's micro, small, and medium enterprises," WIDER Working Paper Series wp-2017-95, World Institute for Development Economic Research (UNU-WIDER).
    7. Long, Cheryl & Yang, Jin, 2016. "How do firms respond to minimum wage regulation in China? Evidence from Chinese private firms," China Economic Review, Elsevier, vol. 38(C), pages 267-284.
    8. Alaniz, Enrique & Gindling, T.H. & Terrell, Katherine, 2011. "The impact of minimum wages on wages, work and poverty in Nicaragua," Labour Economics, Elsevier, vol. 18(S1), pages 45-59.
    9. 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.
    10. World Bank, 2007. "Costa Rica Poverty Assessment : Recapturing Momentum for Poverty Reduction," World Bank Publications - Reports 7678, The World Bank Group.
    11. Larrain, Mauricio & Poblete, Joaquin, 2007. "Age-differentiated minimum wages in developing countries," Journal of Development Economics, Elsevier, vol. 84(2), pages 777-797, November.
    12. Boeri, Tito & Garibaldi, Pietro & Ribeiro, Marta, 2010. "Behind the Lighthouse Effect," IZA Discussion Papers 4890, Institute of Labor Economics (IZA).
    13. Nguyen Viet, Cuong, 2010. "The Impact of a Minimum Wage Increase on Employment, Wages and Expenditures of Low-Wage Workers in Vietnam," MPRA Paper 36751, University Library of Munich, Germany, revised 15 Aug 2011.

    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. 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.
    2. 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).
    3. Haroon Bhorat & Tara Caetano & Benjamin Jourdan & Ravi Kanbur & Christopher Rooney & Benjamin Stanwix & Ingrid Woolard, 2016. "Investigating the Feasibility of a National Minimum Wage for South Africa," Working Papers 201601, University of Cape Town, Development Policy Research Unit.
    4. Lemos, Sara, 2009. "Minimum wage effects in a developing country," Labour Economics, Elsevier, vol. 16(2), pages 224-237, April.
    5. 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.
    6. Sara Lemos, 2007. "Minimum wage effects across the private and public sectors in Brazil," Journal of Development Studies, Taylor & Francis Journals, vol. 43(4), pages 700-720.
    7. Carla Canelas, 2014. "Minimum Wage and Informality in Ecuador," WIDER Working Paper Series wp-2014-006, World Institute for Development Economic Research (UNU-WIDER).
    8. 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.
    9. Sara Lemos, 2004. "Are Wage and Employment Effects Robust to Alternative Minimum Wage Variables?," Discussion Papers in Economics 04/4, Division of Economics, School of Business, University of Leicester.
    10. repec:unu:wpaper:wp2014-006 is not listed on IDEAS
    11. 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 of Labor Economics (IZA).
    12. Kertesi, Gábor & Köllő, János, 2004. "A 2001. évi minimálbér-emelés foglalkoztatási következményei [The employment consequences of the 2001 rise in the minimum wage]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 293-324.
    13. Sara Wong, 2017. "Minimum wage impacts on wages and hours worked of low-income workers in Ecuador," Working Papers PMMA 2017-14, PEP-PMMA.
    14. Katherine Terrell & Rita K. Almeida, 2008. "Minimum Wages in Developing Countries : Helping or Hurting Workers?," World Bank Publications - Reports 11742, The World Bank Group.
    15. Malena Arcidiácono, 2015. "Salario Mínimo y Distribución salarial: Evidencia para Argentina 2003 – 2013," CEDLAS, Working Papers 0192, CEDLAS, Universidad Nacional de La Plata.
    16. Neumark, David & Munguía Corella, Luis Felipe, 2021. "Do minimum wages reduce employment in developing countries? A survey and exploration of conflicting evidence," World Development, Elsevier, vol. 137(C).
    17. Wong, Sara A., 2019. "Minimum wage impacts on wages and hours worked of low-income workers in Ecuador," World Development, Elsevier, vol. 116(C), pages 77-99.
    18. Sara Lemos, 2004. "The Effects Of The Minimum Wage On Wages And Employment In Brazil - A Menu Of Minimum Wage Variables," Labor and Demography 0403008, University Library of Munich, Germany.
    19. David Neumark & William Wascher, 1995. "The Effects of Minimum Wages on Teenage Employment and Enrollment: Evidence from Matched CPS Surveys," NBER Working Papers 5092, National Bureau of Economic Research, Inc.
    20. Ham, Andrés, 2018. "The Consequences of Legal Minimum Wages in Honduras," World Development, Elsevier, vol. 102(C), pages 135-157.
    21. János Köllö, 2010. "Hungary: The Consequences of Doubling the Minimum Wage," Chapters, in: Daniel Vaughan-Whitehead (ed.), The Minimum Wage Revisited in the Enlarged EU, chapter 8, Edward Elgar Publishing.

    More about this item

    Keywords

    minimum wages; employment; wages; Costa Rica;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:wdi:papers:2004-701. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WDI (email available below). General contact details of provider: https://edirc.repec.org/data/wdumius.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.