Minimum Wage Violations in a Dual Labor Market with Multiple Floors

Abstract

Minimum wage compliance is studied by counting how many workers are paid below this floor. While useful, it is unable to identify the degree of underpayment. Recently, a family of violation indices has overcome this issue. I estimate these measures for Honduras, a dual labor market with multiple wage floors. First, I quantify industry-level violations by location and coverage status. Then, I estimate whether higher minimum wages affect non-compliance. The results reveal substantial variation in violations and that raising minimum wages leads to more underpaid workers but does not affect the degree by which they are underpaid.

Keywords: minimum wages, compliance, incidence and depth of violations, dual labor markets, Honduras

JEL Classification: J38, J42, O54