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Estimating the effects of the minimum wage in a developing country: A density discontinuity design approach


  • Jales, Hugo


This paper proposes a framework to identify the effects of the mini- mum wage on the joint distribution of sector and wage in a developing country. I show how the discontinuity of the wage distribution around the minimum wage identifies the extent of non-compliance with the minimum wage policy, and how the conditional probability of sector given wage recovers the relationship between latent sector and wages. I apply the method in the "PNAD", a nationwide representative Brazilian cross-sectional dataset for the years 2001 to 2009. The results indicate that the size of the informal sector is increased by around 39% compared to what would prevail in the absence of the minimum wage, an effect attributable to (i) unemployment effects of the minimum wage on the formal sector, (ii) movements of workers from the formal to the informal sector as a response to the policy.

Suggested Citation

  • Jales, Hugo, 2017. "Estimating the effects of the minimum wage in a developing country: A density discontinuity design approach," GLO Discussion Paper Series 54, Global Labor Organization (GLO).
  • Handle: RePEc:zbw:glodps:54

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    References listed on IDEAS

    1. Carlos Henrique Corseuil & Miguel Foguel & Marcos Hecksher, 2013. "Efeitos dos Pisos salariais Estaduais Sobre o Mercado de Trabalho: Uma Nova Abordagem Empírica," Discussion Papers 1887, Instituto de Pesquisa Econômica Aplicada - IPEA.
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    Cited by:

    1. Du, Pengcheng & Wang, Shuxun, 2020. "The effect of minimum wage on firm markup: Evidence from China," Economic Modelling, Elsevier, vol. 86(C), pages 241-250.
    2. Sharon Katzkowicz & Gabriela Pedetti & Martina Querejeta & Marcelo Bérgolo, 2019. "Low-Skilled Workers and the Effects of Minimum Wage: New Evidence Based on a Density-Discontinuity Approach," Working Papers PMMA 2019-10, PEP-PMMA.
    3. David A. Green, 2014. "What Is a Minimum Wage For? Empirical Results and Theories of Justice," Canadian Public Policy, University of Toronto Press, vol. 40(4), pages 293-314, December.
    4. Jales, Hugo & Ma, Jun & Yu, Zhengfei, 2017. "Optimal bandwidth selection for local linear estimation of discontinuity in density," Economics Letters, Elsevier, vol. 153(C), pages 23-27.
    5. Howell, Anthony, 2020. "Minimum wage impacts on Han-minority Workers’ wage distribution and inequality in urban china," Journal of Urban Economics, Elsevier, vol. 115(C).
    6. Stijn Broecke & Alessia Forti & Marieke Vandeweyer, 2017. "The effect of minimum wages on employment in emerging economies: a survey and meta-analysis," Oxford Development Studies, Taylor & Francis Journals, vol. 45(3), pages 366-391, July.

    More about this item


    Minimum wage; informality; density discontinuity; unemployment;

    JEL classification:

    • J00 - Labor and Demographic Economics - - General - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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