Evidence of the likely negative effect of the introduction of the minimum wage on the least skilled and poor through “labor-labor” substitution

Hiroyuki Yamada

International Journal of Development Issues, 2016, vol. 15, issue 1, 21-34

Abstract: Purpose - This study aims to test one hypothesis regarding the impact of the minimum wage on poverty: an increase or the introduction of the minimum wage raises the cost of hiring relatively unskilled workers, and makes inputs that are good substitutes for such workers more attractive. Design/methodology/approach - Placebo analyses confirmed that a labor–labor substitution is induced by the introduction of the minimum wage. Findings - This study found a labor–labor substitution within low-skill groups induced by the introduction of the minimum wage for domestic and farming work in South Africa. Practical implications - The evidence implies that the minimum-wage policy may not be as effective for poverty reduction as some governments in emerging and developing countries claim. Originality/value - No studies were found on labor–labor substitution in the context of emerging or developing countries. The clear contribution of this paper using South African data clearly lies here.

Keywords: Employment; South Africa; Emerging countries; Poverty; Low-skilled worker; Minimum wage; J3; J4; K2; O2 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijdipp:v:15:y:2016:i:1:p:21-34

DOI: 10.1108/IJDI-05-2015-0038

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