Estimating the effects of the minimum wage in a developing country

A density discontinuity design approach

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

This paper proposes a framework to identify the effects of the minimum 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 noncompliance 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 2001-2009. 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 and (ii) movements of workers from the formal to the informal sector as a response to the policy.

Original languageEnglish (US)
JournalJournal of Applied Econometrics
DOIs
StateAccepted/In press - 2017
Externally publishedYes

Fingerprint

minimum wage
developing country
wage
informal sector
wage policy
unemployment
Discontinuity
Developing countries
Minimum wage
worker
Wages

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

Cite this

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title = "Estimating the effects of the minimum wage in a developing country: A density discontinuity design approach",
abstract = "This paper proposes a framework to identify the effects of the minimum 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 noncompliance 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 2001-2009. 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 and (ii) movements of workers from the formal to the informal sector as a response to the policy.",
author = "{Borges Jales}, Hugo",
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journal = "Journal of Applied Econometrics",
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AB - This paper proposes a framework to identify the effects of the minimum 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 noncompliance 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 2001-2009. 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 and (ii) movements of workers from the formal to the informal sector as a response to the policy.

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