Political Variables as Instruments for the Minimum Wage

The international literature on minimum wage greatly lacks empirical evidence from developing countries. In Brazil, not only are increases in the minimum wage large and frequent but also the minimum wage has been used as anti-inflation policy in addition to its social role. This paper estimates the effects of the minimum wage on employment using monthly household data from 1982 to 2000 aggregated at regional level. A number of conceptual and identification questions is discussed as tentative explanation of the non-negative estimates found in the literature, for example: (1) The use of political variables as excluded exogenous instruments for the minimum wage variable; (2) The superiority of “spike” over “fraction affected” and “Kaitz index” as a minimum wage variable; (3) The decomposition of the minimum wage employment effect into hours worked and number of jobs effects; (4) Robustness checks accounting for sorting into informal and public sectors. Robust results to various alternative specifications and instrumental variables indicate that an increase in the minimum wage has moderately small adverse effects on employment.minimum wage, wage effect, employment effect, informal sector, Brazil, politics

Mind the Gap: What Gap? A Detailed Picture of the Immigrant-Native Earnings Gap in the UK using Longitudinal Data between 1978 and 2006

Using the underexplored, sizeable and long Lifetime Labour Market Database (LLMDB) we estimated the immigrant-native earnings gap across the entire earnings distribution, across continents of nationality and across cohorts of arrival in the UK between 1978 and 2006. We exploited the longitudinal nature of our data to separate the effect of observed and unobserved individual characteristics on earnings. This helped us to prevent selectivity biases such as cohort bias and survivor bias, which have been long standing unresolved identification issues in the literature. In keeping with the limited existing UK literature, we found a clear and wide dividing line between whites and non-whites in simple comparable models. However, in our more complete models we found a much narrower and subtler dividing line. This confirms the importance of accounting for unobservable individual characteristics, which is an important contribution of this paper. It also suggests that the labour market primarily rewards individual characteristics other than immigration status. We also found that the lowest paid immigrants, whom are disproportionately non-white, suffer an earnings penalty in the labour market, whereas higher paid immigrants, whom are disproportionately white, do not. Finally, we found less favourable earning gaps for cohorts that witnessed proportionately larger non-white and lower paid white immigration.Immigration; wages; earnings; earnings-gap; UK

The Effects of the Minimum Wage on Wages, Employment and Prices

This paper puts together evidence for the wages, employment and price effects of the minimum wage. This overall picture will help to understand the small employment effects prevalent in the literature in the light of price effects. The data used is an under-explored monthly Brazilian household survey from 1982 to 2000, similar to the US CPS. As the international literature on the minimum wage is scanty on non-US empirical evidence, in particular on developing countries, this paper will also help to extend the current understanding on the effects of the minimum wage in developing countries. This is crucial if the minimum wage is to be used as a policy to help poor people in poor countries.minimum wage; wage effect; employment effect; price effect; cost shock; pass-through; Brazil

A Menu Of Minimum Wage Variables For Evaluating Wages and Employment Effects: Evidence From Brazil

The international literature on minimum wage greatly lacks empirical evidence from developing countries. Brazil’s minimum wage policy is a distinctive and central feature of the Brazilian economy. Not only are increases in the minimum wage large and frequent but also the minimum wage has been used as anti-inflation policy in addition to its social role. This paper estimates the effects of the minimum wage on both wages and employment using panel data techniques and monthly household data from 1982 to 2000 at individual and regional levels. A number of conceptual and identification questions is discussed, for example: (1) Various strategies on how to best measure the effect of a constant (national) minimum wage are summarized in a “menu” of minimum wage variables. (2) An employment decomposition that separately estimates the effect of the minimum wage on hours worked and on the number of jobs is used. (3) Robustness checks accounting for sorting into the informal and public sectors are performed. Robust results indicate that an increase in the minimum wage strongly compresses the wages distribution with moderately small adverse effects on employment.minimum wage, wage effect, employment effect, informal sector, Brazil

Mind the Gap: A Detailed Picture of the Immigrant-Native Earnings Gap in the UK Using Longitudinal Data Between 1978 and 2006

Using the underexplored, sizeable and long Lifetime Labour Market Database (LLMDB) we estimated the immigrant-native earnings gap across the entire earnings distribution, across continents of nationality and across cohorts of arrival in the UK between 1978 and 2006. We exploited the longitudinal nature of our data to separate the effect of observed and unobserved individual characteristics on earnings. This helped us to prevent selectivity biases such as cohort bias and survivor bias, which have been long standing unresolved identification issues in the literature. In keeping with the limited existing UK literature, we found a clear and wide dividing line between whites and non-whites in simple comparable models. However, in our more complete models we found a much narrower and subtler dividing line. This confirms the importance of accounting for unobservable individual characteristics, which is an important contribution of this paper. It also suggests that the labour market primarily rewards individual characteristics other than immigration status. We also found that the lowest paid immigrants, whom are disproportionately non-white, suffer an earnings penalty in the labour market, whereas higher paid immigrants, whom are disproportionately white, do not. Finally, we found less favourable earning gaps for cohorts that witnessed proportionately larger non-white and lower paid white immigration.immigration, wages, earnings, earnings-gap, UK

The Effects of the Minimum Wage in the Private and Public Sectors in Brazil

The wage and employment effects of the minimum wage predicted by the standard neoclassical theory rely on a profit maximizing firm, not on a Government employer that can cover the higher wage bill by raising taxes, reducing expenditure, or simply printing money. If the public sector has an inelastic labour demand, the associated non-negative employment effect might offset some of the negative employment effect observed in the private sector and the overall employment effect might be less adverse. This is particularly so if the public sector is overpopulated by minimum wage workers, as in Brazil. There is very limited evidence on the minimum wage effects in developing countries, and none whatsoever on the minimum wage effects across the private and public sectors. This paper estimates the effects of the minimum wage on wages and employment in both the private and public sectors. The data used is an under-explored monthly Brazilian household survey from 1982 to 2000 at individual and regional levels. Robust results suggest that the minimum wage compresses the distribution of both sectors, but in line with a stronger effect in the private sector, more adverse employment effects in the long run are also observed in that sector. In the public sector, no evidence of adverse employment effects was uncovered.minimum wage; wage effect; employment effect; private sector; public sector; Brazil

Anticipated Effects of the Minimum Wage on Prices

There is little empirical evidence on the effect of minimum wage increases on prices, particularly for developing countries. This paper estimates this effect using monthly Brazilian household and firm data over 18 years. As minimum wage increases in Brazil are large, frequent and affect a sizable fraction of the labor force, they affect aggregate prices. Because of this expected price effect, rational agents may take such increases as a signal for future price and wage bargains. Indeed, robust results indicate that the minimum wage raises overall prices not only on the month of the increase, but also in the two months before.minimum wage; labor costs; price effect; cost shock; Brazil

The Effects of the Minimum Wage in the Formal and Informal Sectors in Brazil

The minimum wage literature is very limited on empirical evidence for developing countries. This already limited literature is even more limited on the effects of the minimum wage in the informal sector, where most of the poor are. Extending the understanding of minimum wage effects both in developing countries and in particular in the informal sector is crucial if the minimum wage is to be used as a policy to help poor people in poor countries. This paper estimates wage and employment effects, accounting for sorting into the formal and informal sectors. The data used is a monthly Brazilian household survey from 1982 to 2000 at individual and regional levels. The formal and informal sectors employment effects were both found to be negative, consistent with the presence of a large spike, substantial spillover effects, and the associated compression effect in the wage distribution of both sectors. This suggests a downwards sloping labour demand curve in both sectors, challenging the standard Two Sectors Model as inadequate to explain the effect of the minimum wage on the formal and informal sectors in Brazil and in Latin America more generally.minimum wage; wage effect; employment effect; informal sector; Brazil

The Effect of the Minimum Wage on Prices in Brazil

There is very little empirical evidence on the effects of the minimum wage on prices in the international literature and none whatsoever for developing countries. This paper estimates the minimum wage price effect using monthly Brazilian household and firm data from 1982 to 2000 aggregated at a regional level. Empirical evidence on price effects will help to answer the question of who pays for the higher costs: firms, consumers or the unemployed. The answer to this question is a contribution to the controversial recent debate in the literature over the direction of the minimum wage employment effect. Employment might not be affected if firms are able to pass through to prices the higher labour costs associated to a minimum wage increase. In that case, consumers pay for the increase. Furthermore, if the poor consumers are those buying minimum wage labour intensive goods, or if these goods represent a large proportion of their consumption bundle, then minimum wage increases might hurt rather than aid the poor. Moreover, if minimum wage increases cause inflation, they will hurt the poor further, who disproportionately suffer from it. Robust results indicate that the minimum wage raises overall prices in Brazil. The resulting inflation is slightly higher for the poor than for the rich in the long run, smaller in low inflation periods, and larger in poorer regions.minimum wage; wage effect; employment effect; price effect; cost shock

The Effects of the Minimum Wage on Prices in Brazil

There is very little evidence on the effects of the minimum wage on prices in the international literature and none whatsoever for developing countries. This paper analyzes the effects of the minimum wage on prices using monthly Brazilian household and price data from 1982 to 2000 aggregated at a regional level. A number of conceptual and identification questions are discussed, for example: (1) Empirical evidence on price effects might help to answer the question of who pays for the higher costs: firms, consumers, or unemployed. The answer to this question is important for the controversial recent minimum wage debate. Employment might not be affected if firms are able to pass through to prices the higher labour costs associated to a minimum wage increase. (2) If the poor are the consumers of minimum wage labour intensive goods, or if these goods represent a large proportion of their consumption bundle, then minimum wage increases might hurt rather than aid the poor. Furthermore, if minimum wage increases are passed on to consumer prices causing inflation, they might again hurt the poor, who disproportionately suffer from inflation. This is particularly so in the presence of hyperinflation; even more so if the minimum wage has been used as anti-inflation policy in addition to its social role, as in Brazil. Robustness checks on the price effects at a regional level, on low and high income consumers and under low inflation are performed. Robust results indicate that minimum wage increases raise overall prices in Brazil. The resulting inflation is the same for the poor and the rich, smaller in low inflation periods, and larger in poorer regions.minimum wage, wage effect, employment effect, informal sector, cost shock