Minimum Wages and Enforcement Effects on Employment in Developing Countries

33 Pages Posted: 25 Aug 2019

See all articles by Luis F Munguia

Luis F Munguia

Comisión Nacional de los Salarios Mínimos; University of California, Irvine - Department of Economics

Date Written: January 24, 2019

Abstract

I provide an analysis of the effects of minimum wages in developing countries using the enforcement of the law as a plausible explanation of the heterogeneous effects on employment across these countries. I construct a reliable indicator for the degree of enforcement by reading and organizing the labor codes of 82 developing countries and quantifying penalties and degree of enforcement. I interact minimum wage changes with the degree of enforcement (grouped in none, weak, and strong enforcement) and estimate minimum wage effects in different enforcement settings. My main results are that minimum wage has adverse effects on total employment (elasticity -0.0166) in countries with strong enforcement (i.e., with costly penalties), especially on female workers (elasticity -0.0172). The negative effect is significantly different between countries with no enforcement and countries with strong enforcement. These results are sharper when I interact with a measurement of the quality of the enforcement.

Keywords: enforcement of the law, labor demand, minimum wages, public policy

JEL Classification: J33, J38

Suggested Citation

Munguia, Luis F, Minimum Wages and Enforcement Effects on Employment in Developing Countries (January 24, 2019). Available at SSRN: https://ssrn.com/abstract=3442352 or http://dx.doi.org/10.2139/ssrn.3442352

Luis F Munguia (Contact Author)

Comisión Nacional de los Salarios Mínimos ( email )

Ave. Cuauhtémoc 14
Col. Doctores
Ciudad de México, Ciudad de México 06720
Mexico

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

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