Implications of Minimum Wage Increases on Labor Market Dynamics : Lessons for Emerging Economies

This paper offers evidence on the relationship between the minimum wage and unemployment and informal employment, and identifies some of the lessons learned on the potential effects of increasing the minimum wage. Most of the evidence suggests that...

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Main Authors:	Del Carpio, Ximena V., Pabon, Laura M.
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2017
Subjects:	MINIMUM WAGE LABOR MARKET EMERGING ECONOMIES FIRM PERFORMANCE EMPLOYMENT POVERTY UNEMPLOYMENT INFORMAL LABOR
Online Access:	http://documents.worldbank.org/curated/en/808221492537893842/Implications-of-minimum-wage-increases-on-labor-market-dynamics-lessons-for-emerging-economies http://hdl.handle.net/10986/26468

id	okr-10986-26468
recordtype	oai_dc
spelling	okr-10986-264682021-06-08T14:42:45Z Implications of Minimum Wage Increases on Labor Market Dynamics : Lessons for Emerging Economies Del Carpio, Ximena V. Pabon, Laura M. MINIMUM WAGE LABOR MARKET EMERGING ECONOMIES FIRM PERFORMANCE EMPLOYMENT POVERTY UNEMPLOYMENT INFORMAL LABOR This paper offers evidence on the relationship between the minimum wage and unemployment and informal employment, and identifies some of the lessons learned on the potential effects of increasing the minimum wage. Most of the evidence suggests that sizable increases in the minimum wage are likely to exacerbate unemployment and the prevalence of informal employment, which could have negative consequences for labor productivity and businesses as a result of reduced investment in employee training and loss of productive workers. This outcome occurs when businesses adopt the main channels available for absorbing increased labor costs. The majority of the empirical evidence suggests that the effects of minimum wage increases on unemployment and the demand for labor are unclear. The outcome depends in large part on the specific characteristics of the labor markets and the degree of compliance with the minimum wage law. Most of those affected by minimum wage increases are less qualified workers. In Latin American and Asia, differences in the effects of minimum wage increases depend largely on the size and type of firms. In countries with high levels of informal employment, minimum wage increases can increase informal employment, since the formal workers who lose their jobs are absorbed by the informal sector of the economy. In general, businesses have five mechanisms for absorbing the added labor costs. Given the characteristics of the labor market in emerging economies, it is likely that businesses faced with increased labor costs will resort to less than optimal channels, which will tend to affect their productivity and the labor market in general. 2017-04-26T21:22:42Z 2017-04-26T21:22:42Z 2017-04 Working Paper http://documents.worldbank.org/curated/en/808221492537893842/Implications-of-minimum-wage-increases-on-labor-market-dynamics-lessons-for-emerging-economies http://hdl.handle.net/10986/26468 English en_US Policy Research Working Paper;No. 8030 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper East Asia and Pacific Latin America & Caribbean
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	MINIMUM WAGE LABOR MARKET EMERGING ECONOMIES FIRM PERFORMANCE EMPLOYMENT POVERTY UNEMPLOYMENT INFORMAL LABOR
spellingShingle	MINIMUM WAGE LABOR MARKET EMERGING ECONOMIES FIRM PERFORMANCE EMPLOYMENT POVERTY UNEMPLOYMENT INFORMAL LABOR Del Carpio, Ximena V. Pabon, Laura M. Implications of Minimum Wage Increases on Labor Market Dynamics : Lessons for Emerging Economies
geographic_facet	East Asia and Pacific Latin America & Caribbean
relation	Policy Research Working Paper;No. 8030
description	This paper offers evidence on the relationship between the minimum wage and unemployment and informal employment, and identifies some of the lessons learned on the potential effects of increasing the minimum wage. Most of the evidence suggests that sizable increases in the minimum wage are likely to exacerbate unemployment and the prevalence of informal employment, which could have negative consequences for labor productivity and businesses as a result of reduced investment in employee training and loss of productive workers. This outcome occurs when businesses adopt the main channels available for absorbing increased labor costs. The majority of the empirical evidence suggests that the effects of minimum wage increases on unemployment and the demand for labor are unclear. The outcome depends in large part on the specific characteristics of the labor markets and the degree of compliance with the minimum wage law. Most of those affected by minimum wage increases are less qualified workers. In Latin American and Asia, differences in the effects of minimum wage increases depend largely on the size and type of firms. In countries with high levels of informal employment, minimum wage increases can increase informal employment, since the formal workers who lose their jobs are absorbed by the informal sector of the economy. In general, businesses have five mechanisms for absorbing the added labor costs. Given the characteristics of the labor market in emerging economies, it is likely that businesses faced with increased labor costs will resort to less than optimal channels, which will tend to affect their productivity and the labor market in general.
format	Working Paper
author	Del Carpio, Ximena V. Pabon, Laura M.
author_facet	Del Carpio, Ximena V. Pabon, Laura M.
author_sort	Del Carpio, Ximena V.
title	Implications of Minimum Wage Increases on Labor Market Dynamics : Lessons for Emerging Economies
title_short	Implications of Minimum Wage Increases on Labor Market Dynamics : Lessons for Emerging Economies
title_full	Implications of Minimum Wage Increases on Labor Market Dynamics : Lessons for Emerging Economies
title_fullStr	Implications of Minimum Wage Increases on Labor Market Dynamics : Lessons for Emerging Economies
title_full_unstemmed	Implications of Minimum Wage Increases on Labor Market Dynamics : Lessons for Emerging Economies
title_sort	implications of minimum wage increases on labor market dynamics : lessons for emerging economies
publisher	World Bank, Washington, DC
publishDate	2017
url	http://documents.worldbank.org/curated/en/808221492537893842/Implications-of-minimum-wage-increases-on-labor-market-dynamics-lessons-for-emerging-economies http://hdl.handle.net/10986/26468
_version_	1764462059070685184

Implications of Minimum Wage Increases on Labor Market Dynamics : Lessons for Emerging Economies

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