Minimum Wage Effects Under Weak Compliance with Labor Regulations: The Case of Bolivia

Abstract

The empirical minimum wage literature, is mostly based on high law compliance contexts (developed countries) and therefore is not very informative for analyzing developing countries where the minimum wage aims to affect a higher share of vulnerable and poor workers. This paper contributes to the literature by providing new evidence on the minimum wage effects in a context of weak compliance with labor regulations (extreme informality). Hence, we focus on Bolivia, the country with the highest informal employment share in Latin-America according to ILO. Using a pooled cross section of household surveys ranging from 2005 to 2013, we find evidence that the minimum wage policy contributed to exacerbate women’s vulnerability by widening the wage gap and reducing their social protection coverage. Our findings stress the importance of assessing minimum wage effects of vulnerable groups in contexts of high weak compliance with labor regulation.

Keywords: minimum wage, unemployment, informal employment

JEL Classification: J3, J4