Informality and minimum wages by cohort in Colombia

Jhon Mora Rodriguez () and Juan Muro ()

Revista Cuadernos de Economia, 2014

Abstract: This article aims to analyze the effect of minimum wage levels on the decision to join the informal job sector. We estimated a pseudo panel model of engagement in the informal sector using an IV-probit. Our results show that an increased wage gap—the relative difference between observed and minimum wage—has not only a disincentive effect on the probability of joining informality, but also leads to a substitution effect between younger and older cohorts. ***** Este artículo busca analizar el efecto de los niveles del salario mínimo en la decisión de unirse al sector del empleo informal. Estimamos un modelo pseudo panel de participación en el sector informal usando un probit-IV. Nuestros resultados muestran que la creciente brecha salarial –la diferencia relativa entre el salario observado y el salario mínimo– no solo tiene un efecto de desincentivo en la probabilidad de unirse a la informalidad, sino que además lleva a un efecto de sustitución entre las cohortes más jóvenes y las de mayor edad.

Keywords: Informality; minimum wages; instrumental variable probit; pseudopanel; sample selection bias. (search for similar items in EconPapers)
JEL-codes: C35 J32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000093:012113

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