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“Disemployment” effects of the minimum wage in the Colombian manufacturing sector

Luis Arango Thomas () and Sergio A. Rivera ()
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Sergio A. Rivera: Banco de la República de Colombia

Borradores de Economia from Banco de la Republica de Colombia

Abstract: In a labour demand approach, we present evidence of the effect that variations of the real minimum wage has on the formal employment of the industrial sector. The sample includes all industrial establishments of the Annual Manufacturing Survey between 2000 and 2015 that were always active during the whole period. We differentiate the workforce between skilled and unskilled by types of contracts (permanent and temporary). The real wage paid to workers by plants is divided into two components: one linked to the minimum wage and other that mirrors the plants’ own-policy remuneration. The labour demand functions, conditional and unconditional, that we estimate are consistent with the theory and the previous literature. The evidence suggests that increases of the real minimum wage destroy employment fundamentally of unskilled labour, both permanent and temporary mainly in plants with less than 100 workers dedicated to production. The long-term elasticities of labour demand to the real minimum wage that we estimate in multiple specifications are between -0.615 and -0.715. Thus, an increase of 1 percent of the minimum wage reduces, ceteris paribus, labour demand about 0.7 percent within a period between one and two years. The real wage elasticity is between -0.358 and -0.718 while the sizeable output elasticity, about 1.6, suggests a high cyclicality of labour demand. **** RESUMEN: En un enfoque de demanda laboral, presentamos evidencia del efecto que tienen las variaciones del salario mínimo real en el empleo formal del sector industrial. La muestra incluye los establecimientos industriales de la Encuesta Anual de Manufactura entre 2000 y 2015 que estuvieron activos durante todo el período. Diferenciamos los trabajadores entre calificados y no calificados con contratos permanentes y temporales. El salario real que pagan las plantas a sus trabajadores se divide en dos componentes: uno vinculado al salario mínimo y otro que refleja la política de remuneración propia de la firma. Las funciones de demanda laboral estimadas, condicional e incondicional, son consistentes con la teoría y la literatura previa. La evidencia sugiere que los aumentos en el salario mínimo real destruyen el empleo fundamentalmente de mano de obra no calificada, tanto permanente como temporal, principalmente en planteas con menos de 100 trabajadores dedicados a la producción. Las elasticidades a largo plazo de la demanda laboral al salario mínimo real estimadas en múltiples especificaciones están entre -0,615 y -0,715. Esto es, con todo lo demás constante, un aumento del SM real de 1% produce una pérdida de puestos de trabajo de 0,7% en un horizonte de uno a dos años. La elasticidad al salario real está entre -0,358 y -0,718 mientras que la elasticidad al producto se sitúa alrededor de 1,6, lo cual sugiere una alta dependencia de la demanda laboral al ciclo económico.

Keywords: minimum wage; employment; permanent workers; temporary workers; skilled and unskilled workers; salario mínimo; empleo; empleados permanentes; empleados temporales; trabajadores calificados y no calificados. (search for similar items in EconPapers)
JEL-codes: J23 (search for similar items in EconPapers)
Pages: 26
Date: 2020-03
New Economics Papers: this item is included in nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1107

DOI: 10.32468/be.1107

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