Low-Skilled Workers and the Effects of Minimum Wage: New Evidence Based on a Density-Discontinuity Approach

48 Pages Posted: 27 Jun 2019

See all articles by Sharon Katzkowicz

Sharon Katzkowicz

Centro Interdisciplinario de Estudio sobre el Desarrollo (CIEDUR)

Gabriela Pedetti

Centro Interdisciplinario de Estudio sobre el Desarrollo (CIEDUR)

Martina Querejeta

Centro Interdisciplinario de Estudio sobre el Desarrollo (CIEDUR)

Marcelo Bergolo

Universidad de la Republica - Instituto de Economía; IZA Institute of Labor Economics

Date Written: June 26, 2019

Abstract

We estimated the impact of the minimum wage on wages, unemployment, and formal-informal sector mobility for women in the domestic-work sector in Uruguay. Applying the dual-economy, density-discontinuity design developed by Jales (2017), we used cross-sectional data for 2006-2016 from the National Household Survey and found that the minimum wage had significant effects on labor outcomes, with almost 20% of women increasing their wages to reach the minimum. This effect was observed in both the formal and informal sector, though the latter was not covered by the policy. Our results showed a drop in employment as well as a significant effect on sector mobility with negative impacts on formality. Nevertheless, these undesired effects were offset by other labour policies undertaken in the period, by sustained economic growth, and by improvement in labor-market conditions. A novel identification strategy that is particularly suited to developing countries provides empirical evidence regarding the effects of a minimum wage on women workers in the informal sector.

Keywords: minimum wage, labour market, gender, informal sector, developing countries

JEL Classification: J08, J16, J21, J31

Suggested Citation

Katzkowicz, Sharon and Pedetti, Gabriela and Querejeta, Martina and Bergolo, Marcelo, Low-Skilled Workers and the Effects of Minimum Wage: New Evidence Based on a Density-Discontinuity Approach (June 26, 2019). Partnership for Economic Policy Working Paper No. 2019-10. Available at SSRN: https://ssrn.com/abstract=3410536 or http://dx.doi.org/10.2139/ssrn.3410536

Sharon Katzkowicz (Contact Author)

Centro Interdisciplinario de Estudio sobre el Desarrollo (CIEDUR) ( email )

Uruguay

Gabriela Pedetti

Centro Interdisciplinario de Estudio sobre el Desarrollo (CIEDUR) ( email )

Uruguay

Martina Querejeta

Centro Interdisciplinario de Estudio sobre el Desarrollo (CIEDUR) ( email )

Uruguay

Marcelo Bergolo

Universidad de la Republica - Instituto de Economía ( email )

Montevideo
Uruguay

HOME PAGE: http://www.iecon.ccee.edu.uy

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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