Measuring the Impact of Minimum Wages- Evidence from Latin America

Authors: 

William F. Maloney
Jairo Nuñez Mendez

Summary

Minimum wages have again surfaced as a central issue in labor market policy in the region. In countries such as Mexico and Brazil, the real level of the minimum wage became so eroded over the 1980s that there is pressure to provide a “living” income for those at the lower tail of the distribution. On the other hand, high rates of unemployment in some countries and the premium that more open trade postures put on labor market flexibility has made policy makers wary of introducing new rigidities. This chapter 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 for eight countries (Argentina, Bolivia, Brazil, Chile, Colombia, Honduras, Mexico, and Uruguay). In particular, it attempts to identify effects higher in the wage distribution and in the unregulated or “informal” sector. The central message is that the minimum wage has impacts on wage setting far beyond those usually contemplated and likely beyond those found in the industrialized countries. The final section then employs panel employment data from Colombia, a country where minimum wages seem high and very binding, to quantify these effects and their impact on employment.

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