Minimum Wages and Informality

Ellora Derenoncourt, Francois Gerard, Lorenzo Lagos and Claire Montialoux

No 34445, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: How do minimum wages affect informality? We study the near-doubling of the real minimum wage from 2000 to 2009 in Brazil, where 46% of the workforce is informal. Using labor force surveys covering the informal sector, we show that the minimum wage increases wages for informal employees, with an effect about two-thirds the size of that on formal employees. Wage gains are especially pronounced in areas with greater enforcement capacity, among industries with a low share of informality, and for informal workers with a greater number of formal outside options. In light of the sewage spillovers in the informal sector, reallocation away from formal employment is muted: a 10% gain in formal sector wages from the minimum wage translates to 2.8% of workers reallocated from formal to other forms of employment. Examining heterogeneity across workers, reallocation is smaller precisely where wage gains to informal workers are larger, a pattern that contrasts with many existing models of informality.

JEL-codes: J23 J46 J88 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-inv, nep-iue and nep-lma
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Working Paper: Minimum Wages and Informality (2025)
Working Paper: Minimum Wages and Informality (2025)
Working Paper: Minimum Wages and Informality (2025)
Working Paper: Minimum Wages and Informality (2025)
Working Paper: Minimum Wages and Informality (2025)
Working Paper: Minimum Wages and Informality (2025)
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