Informality and Minimum Wages by Cohort in Colombia
Cuadernos de Economía, Vol. 33, No. 63, pp. 469-486, 2014
18 Pages Posted: 29 Apr 2015
Date Written: August 29, 2014
Abstract
This article aims to analyze the effect of minimum wage levels on the decision to join the informal job sector. We estimated a pseudo panel model of engagement in the informal sector using an IV-probit. Our results show that an increased wage gap — the relative difference between observed and minimum wage — has not only a disincentive effect on the probability of joining informality, but also leads to a substitution effect between younger and older cohorts.
Keywords: Informality, minimum wages, instrumental variable probit, pseudo panel, sample selection bias.
JEL Classification: C35, J32.
Suggested Citation: Suggested Citation