Measuring the Impact of Minimum Wages: Evidence from Latin America

Abstract

This paper first provides an overview of the levels of minimum wages in Latin America and their true impact on the distribution of wages using both numerical measures and kernel density plots. It identifies "numeraire" effects higher in the wage distribution and "lighthouse" or reference effects in the unregulated or "informal" sector. The final section then employs panel employment data from Colombia, a country where minimum wages seem high and very binding, to quantify the effects of an increase on wages and employment. The evidence suggests that in the Latin American context, the minimum wage has impacts beyond those usually contemplated in the advanced country literature.

El Salario Mínimo en los Sectores Formal e Informal: Evidencia Derivada de un Choque Inflacionario en Colombia

“…Este artículo también agrega a la literatura sobre efectos del salario mínimo en Colombia. Maloney y Mendez (2004) argumentan que el salario mínimo es vinculante e induce picos en la distribución salarial. Utilizando métodos de series de tiempo, encuentran que el salario mínimo incrementa los salarios a lo largo de la distribución salarial.…”

“…El salario mínimo ha sido históricamente elevado en Colombia, en comparación con otros países de América Latina. En 1998 la razón entre el salario mínimo y la mediana fue de 0.68 (Maloney y Mendez, 2004).…”

“…La literatura de economía laboral para países en desarrollo muestra que la distribución salarial de los trabajadores informales tiene una moda en el nivel del salario mínimo (Maloney y Mendez, 2004;Gindling y Terrell, 2005;Lemos, 2009;Khamis, 2013). Para los mercados laborales formales en estos mismos países, la literatura indica que el salario mínimo afecta la parte baja de la cola de la distribución salarial (Bosch y Manacorda, 2010).…”

Do Labor Market Regulations Affect the Link between Innovation and Employment? Evidence from Latin America

“…Kaplan (2009) investigates the relationship between labor market regulations and employment for Latin American countries and also comes to the conclusion that an increase in the flexibility of labor markets will likely increase aggregate employment for permanent employees. Several studies of minimum wages find a modest negative effect on employment (Bell, 1997;Fajnzylber, 2001;Lemos et al, 2004;Maloney & Mendez, 2004;Arango-Arango & Pachón, 2004;Neumark et al, 2006;Del Carpio et al, 2012;Gindling & Terrell, 2007;Alaniz et al, 2011), with more pronounced effects on young and low skilled workers (Montenegro & Pagés, 2007;Arango-Arango & Pachón, 2004;Neumark et al, 2014).…”

Tax-Transfers Schemes, Informality, and Search Frictions in a Small Open Economy

“…International trade was largely liberalized, due to significant reductions in import tariffs.17 According to a recent Informality survey byBatini, Kim, Levine and Lotti (2010), 87 percent of self-employed and informal workers in Colombia are concentrated in non-tradables (i.e commerce and services).18 Author's calculations based on Colombian Household Survey. No data are available before 2001.19 An inflexible wage structure in the formal sector may also be a factor since previous literature(Maloney, Nunez, 2001) suggests that minimum wages in Colombia are high and binding. Here I don't consider any source of wage rigidity.…”