Minimum wage effects on labour informality: heterogeneity across demographic groups in Colombia

Luis Arango Thomas, Luz Florez, Laura D. Guerrero and Alejandra Morales-Rojas

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, where the informality is by far the most serious problem of the labour market. The working population is divided into sixteen groups depending on the age, gender, and educational level. This division allows us to estimate how the relative level of restrictiveness of the minimum wage across different demographic groups affect the probability of being an informal worker. We find that the higher the minimum wage with respect to the 70th percentile wage, the higher will be the probability of being informal. Across different demographic groups, we find significant effects for men and women between 18 to 25 years old with lower education levels. Also, less-educated women aged 51 to 65 years old are affected by the minimum wage policy. For these groups, an increase of one percentage point (pp) in the MW ratio increases the probability of having an informal job between 0.35 and 0.99 pp compared to the reference group (men aged 26 to 40 years old and with higher education level) depending on the informality rate measure employed. **** RESUMEN: Presentamos evidencia de los efectos del salario mínimo en las tasas de informalidad laboral en Colombia, donde la informalidad es el problema más grave del mercado laboral. Los trabajadores se dividen en dieciséis grupos según edad, género y nivel educativo. Esta división permite estimar cómo el nivel relativo de restricción del salario mínimo en diferentes grupos demográficos afecta la probabilidad de ser un trabajador informal. Se encuentra que cuanto mayor sea la razón del salario mínimo al salario del percentil 70, mayor será la probabilidad de tener un trabajo informal. Entre los diferentes grupos demográficos, encontramos efectos significativos para hombres y mujeres entre 18 y 25 años con bajo nivel educativo y. Asimismo, las mujeres de 51 a 65 años con bajo nivel educativo se ven afectadas por la política del salario mínimo. Para estos grupos, un aumento de un punto porcentual (pp) en la razón del salario mínimo aumenta la probabilidad de tener un trabajo informal entre 0,35 y 0,99 pp en comparación con el grupo de referencia (hombres de 26 a 40 años con mayor nivel educativo), dependiendo de la medida de la tasa de informalidad empleada.

Keywords: minimum wage; labour informality; heterogeneity; salario mínimo; informalidad laboral; heterogeneidad (search for similar items in EconPapers)
JEL-codes: J21 J30 J46 O17 (search for similar items in EconPapers)
Pages: 28
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 labour informality: heterogeneity 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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