Minimum wage effects on informality across demographic groups in Colombia

Luis Arango Thomas, Luz Florez and Laura D. Guerrero

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We present evidence of the minimum wage effects on labour informality rates in Colombia. Our identification strategy consists of dividing the working population into sixteen groups depending on their age, gender and educational level to observe how the variations in the minimum wage with respect to the 70th percentile of the distribution of salaries corresponding to the demographic group of each individual, affects the probability of having an informal occupation. The results suggest that the higher the value of the minimum wage ratio the higher will be the probability of being informal. An increase of one percentage point (pp) in the ratio of the minimum wage increases the probability of having an informal job by 0.21 pp. This effect may be greater in cities with higher informality rates and consequently with lower labour productivity of less educated workers. Our results also present evidence of non-linear effects, which suggests that workers whose labour productivity is less than the minimum wage are more likely to have informal jobs. **** RESUMEN: En este documento presentamos evidencia de las implicaciones del salario mínimo en la informalidad laboral. Nuestra estrategia de identificación consiste en dividir la población trabajadora en dieciséis grupos dependiendo de su edad, género y nivel educativo para observar cómo las variaciones del salario mínimo con respecto al percentil 70 de la distribución de salarios correspondiente al grupo demográfico de cada individuo, afecta su probabilidad de tener una ocupación informal. Los resultados sugieren que a mayor valor de la razón del salario mínimo más alta será la probabilidad de ser informal. Un incremento de un punto porcentual (pp) en la razón del salario mínimo incrementa la probabilidad de tener un empleo informal en 0.21 pp. Este efecto puede ser mayor en ciudades con mayor tasa de informalidad y en consecuencia con menor productividad laboral de aquellos trabajadores menos educados. Finalmente, nuestros resultados presentan evidencia de efectos no lineales, lo cual sugiere que aquellos trabajadores cuya productividad laboral es muy baja con respecto al salario mínimo, tienen una mayor probabilidad de tener trabajos informales. Classification-JEL: J21, J30, J46, O17

Keywords: minimum wage; labour informality; heterogeneity; salario mínimo; informalidad laboral; heterogeneidad (search for similar items in EconPapers)
Pages: 24
Date: 2020-02
New Economics Papers: this item is included in nep-iue and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://doi.org/10.32468/be.1104

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Working Paper: Minimum wage effects on informality across demographic groups in Colombia (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1104

DOI: 10.32468/be.1104

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