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Minimum wage through the looking glass

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  • Kenn Ariga

    (Institute of Economic Research, Kyoto University)

Abstract

We investigate impacts of two major increases in minimum wage of Thailand in 2012, and 2013. In spite of the large increase in average wage induces by the hike, the effect on employment is positive. Given that roughly 40% of daily wage samples are less than the minimum wage, we build and estimate a model that incorporate (minimum wage) compliance decision. We use switching regressions to estimate the gap in wages between above and below minimum wage. This gap is sizable and statistically significant for daily wage, but small and statistically insignificant for monthly wage. When the employer's probability for compliance is included in the employment probability of individuals, we find that the higher compliance rate positively in- fluence the employment probability. These finding strongly suggest that the minimum wage hike in 2012~13 induced north-eastward shift of the equilibrium along the labor supply schedule. In the last part of the analysis, we offer a va- riety of circumstantial evidence in support of tacit collusion among large scale employers in setting daily wages.

Suggested Citation

  • Kenn Ariga, 2016. "Minimum wage through the looking glass," KIER Working Papers 927, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:927
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    References listed on IDEAS

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    More about this item

    Keywords

    minimum wage; minimum wage compliance; Thailand;
    All these keywords.

    JEL classification:

    • 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
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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