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Policy variables as instruments for the minimum wage

Lemos, S.; (2003) Policy variables as instruments for the minimum wage. (Discussion Papers in Economics 03-03). Department of Economics, University College London: London, UK. Green open access


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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.

Type: Working / discussion paper
Title: Policy variables as instruments for the minimum wage
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.ucl.ac.uk/silva/economics/research/pape...
Language: English
Keywords: JEL classification: J38. Minimum wage, wage effect, employment effect, informal sector
URI: https://discovery.ucl.ac.uk/id/eprint/2552
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