Publication: Measuring the Impact of Minimum Wages : Evidence from Latin America
Date
2001-04
ISSN
Published
2001-04
Author(s)
Nunez, Jairo
Fiess, Norbert
Montenegro, Claudio
Murrugarra, Edmundo
Santamaria, Mauricio
Sepulveda, Claudia
Abstract
The authors provide an overview of
minimum wage levels in Latin America and their true impact
on the distribution of wages, using both numerical measures
and kernal density plots for eight countries (Argentina,
Bolivia, Brazil, Chile, Colombia, Honduras, Mexico, and
Uruguay). They especially try to identify
"numeraire" effects--where the minimum is used as
a reference higher in the wage distribution--and
"lighthouse" effects--where it influences wage
setting in the unregulated or "informal" sector.
Their main findings: First, statutory minimum wages are
often misleading, and graphical methods may be more
reliable. Second, the minimum wage's effect on wage
setting extends far beyond what is usually considered and
probably beyond the effect in industrial countries. Using
panel employment data from Colombia, where minimum wages
seem high and binding, the authors quantify the minimum
wage's effects on wages and on the probability of
becoming unemployed. The Colombian case confirms the
evidence offered by kernal density estimates: 1) The minimum
wage can have an important impact on wage distribution in
the neighborhood of the minimum wage. 2) The effects echo up
the wage distribution in a clear demonstration of the
"numeraire" effect. That this effect is stronger
in Latin America than in the United States suggests that the
minimum wage induces further-reaching rigidities in the
labor market. The trade-off between any possible effect on
poverty and reduced flexibility is likely to be more severe
in countries where this is the case. The effects on
employment, and unemployment, are substantial. 3) Informal
salaries wages are also affected, confirming the graphical
evidence of strong lighthouse effects. Self-employment
earnings are not, however, confirming that the minimum wage
is not simply serving as a measure of inflationary expectations.
Link to Data Set
Citation
“Maloney, William F.; Nunez, Jairo; Cunningham, Wendy; Fiess, Norbert; Montenegro, Claudio; Murrugarra, Edmundo; Santamaria, Mauricio; Sepulveda, Claudia. 2001. Measuring the Impact of Minimum Wages : Evidence from Latin America. Policy Research Working Paper;No. 2597. © World Bank, Washington, DC. http://hdl.handle.net/10986/19665 License: CC BY 3.0 IGO.”
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