Estimating the Effects of the Minimum Wage in a Developing Country: A Density Discontinuity Design Approach

Abstract

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Labor Market Institutions and the Distribution of Wages: The Role of Spillover Effects

“…Intuitively, the minimum wage creates a sharp discontinuity in the probability of being just above and just below its value. As in Doyle ( 2006) and Jales (2018), identification can be achieved as in a regression discontinuity design provided that the underlying latent wage distribution is smooth around the value of the minimum wage. Constraining the distribution regression's coefficients to change smoothly across the various cut points 𝑦𝑦 𝑘𝑘 implies that the latent distribution is also smooth.…”

New Perspectives on Inequality in Latin America

“…More generally defined, informality implies employment relations in which labor norms are not enforced, including mandates on minimum remuneration. Changes in the minimum wage not only a↵ect the structure of wages and the level of employment, but they can also induce reallocations between the formal and informal sectors to avoid the regulation, and even a↵ect wages in the informal sector due to indexation (Maloney and Nuñez, 2003;Maurizio, 2015;Meghir et al, 2015;Broecke et al, 2017;Jales, 2018;Pérez Pérez, 2020). Analysis of the distributional e↵ects of minimum wages within the region must consider this interplay.…”

“…Over the entire period, the direct e↵ect of minimum wages on inequality was muted. Finally, Jales (2018) proposes a framework that uses the discontinuity of the wage distribution around the minimum wage to identify noncompliance and estimate the distributional e↵ects of the minimum wages in Brazil between 2001-2009. One novelty is that the method allows them to identify the e↵ects of minimum wages on the size of the informal sector, capturing the reallocation mechanism.…”

“…Summarizing recent studies on minimum wage e↵ects on inequality in Latin America since the 1990s, Messina and Silva (2018) conclude that results are highly sensitive to its level, how much it increases, the extent of noncompliance, and whether it is binding. However, studies focusing on the post-2000s period consistently show an equalizing effect of minimum wages (Maurizio and Vázquez, 2016;Ferreira et al, 2017;Jales, 2018;Campos-Vazquez and Esquivel, 2021). The solid economic growth in the region between 2002-2014 might explain this result because labor markets can a↵ord minimum wage hikes in such favorable macroeconomic conditions.…”

Better Bunching, Nicer Notching

“…Bunching estimators are widely applied in settings including fuel economy regulations (Sallee and Slemrod, 2012), electricity demand (Ito, 2014), real estate taxes (Kopczuk and Munroe, 2015), labor regulations (Garicano, Lelarge, and Van Reenan, 2016), prescription drug insurance (Einav, Finkelstein, and Schrimpf, 2017), marathon finishing times (Allen, Dechow, Pope, and Wu, 2017), attribute-based regulations (Ito and Sallee, 2018), education (Dee, Dobbie, Jacob, and Rockoff, 2019;Caetano, Caetano, and Nielsen, 2020b), minimum wage (Jales, 2018;Cengiz, Dube, Lindner, and Zipperer, 2019), and air-pollution data manipulation (Ghanem, Shen, and Zhang, 2019), among others. Variation in the size of the mass point across groups of individuals has also been used as a first stage in a two stage approach to control for endogeneity (Chetty, Friedman, and Saez, 2013;Caetano, 2015;Grossman and Khalil, 2019).…”