Jales paper on the effects of the minimum wage in a developing country published in Jour of AE

Jul 24, 2017

Estimating the Effects of Minimum Wage in a Developing Country: A Density Discontinuity Design Approach

Hugo Jales

Journal of Applied Econometrics, July 2017

Hugo Jales

Economics Department

Center for Policy Research

Labor

Journal of Applied Econometrics

Hugo Jales

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. The author shows 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. The author applies 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 percent 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.