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A cohort-based analysis of the influence of minimum wage levels on labour force participation in the informal sector: Quantitative and substitution effects

Jhon Mora () and Juan Muro ()

No 1001, Alcamentos from Universidad de Alcalá, Departamento de Economía.

Abstract: This paper discusses the effect of the minimum wage level on the decision to join the informal job sector. We estimate a pseudo panel of the engagement in the informal sector using an IV-probit. The findings show that an increase in the minimum wage level leads to a substitution effect between young and older workers. This results show that the standards effects over the labor market in the WGM segmented model are moderate because an increase of the minimum wage level does not imply total mobility between sectors.

Keywords: Informality; minimum wages; instrumental variable probit; pseudo panel; sample selection bias (search for similar items in EconPapers)
JEL-codes: C35 J32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2010
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