This paper proposes a new framework to identify the effects of the minimum wage on the joint distribution of sector and wages in a developing country. I show that under reasonable assumptions, cross-sectional data on the worker's wage and sector can identify the joint distribution of the latent counterparts of these variables; that is, the sector status and wage that would prevail in the absence of the minimum wage. I apply the method in the “PNAD”, a nationwide representative Brazilian cross-sectional dataset for the years 2001 to 2009. The results indicate that the size of the informal sector is increased by around 39% compared to what would prevail in the absence of the minimum wage, an effect attributable to (i) unemployment effects of the minimum wage on the formal sector, (ii) movements of workers from the formal to the informal sector as a response to the policy.
Minimum wage, informality, unemployment, density discontinuity design, wage inequality, labor tax revenues, formal sector
Working Papers Series
Economics | Income Distribution | Public Affairs, Public Policy and Public Administration | Work, Economy and Organizations
Jales, Hugo, "Estimating the Effects of the Minimum Wage in a Developing Country: A Density Discontinuity Design Approach" (2015). Center for Policy Research. 216.
Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.