Minimum wage and job mobility

Available from: 
August 2013

By: Nikita Céspedes Reynaga (Ponticia Universidad Catolica del Peru) and Alan Sánchez (Grupo de Analisis para el Desarrollo)

We study the eects of the minimum wage in over employment and income by considering a monthly database that captures seven minimum wage changes registered between 2002 and 2011. We estimate that about 1 million workers have an income by main occupation in the neighbourhood of the minimum wage. We found that the minimum wage-income elasticity is statistically signicant; the evidence also suggests that those who receive low incomes and those working in small businesses are the most aected by increases in the minimum wage.

Employment eects are monotonically decreasing in absolute terms by rm size: moderate in big rms and higher in small rms. Results are robust when assessing the job-to-job transitions. Finally, we present evidence that supports the hypothesis that the minimum wage in Peru is correlated with income. The movement of income distribution in the context of changes in the minimum wage aswell as the results provided by a model that captures the drivers of income justify this result.

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