The Effect of the Minimum Wage in Latin America's six largest economies

Abstract

Minimum wage (MW) policies are widespread in the developing world and yet their effects are still unclear. In this paper we explore the effect of national MW policies in Latin America’s six largest economies by exploiting the heterogeneity in how binding minimum wages are across local labor markets and over time. We find evidence that the MW has a compression effect on the wage distribution of formal workers. The effect was particularly large during the 2000s, a decade of sustained growth and strong labor markets. In contrast, the effect seems to vanish in the 2010s, a decade of much weaker labor markets. We also find suggestive evidence of a lighthouse effect: the MW seems to have an unequalizing effect also on the wage distribution of informal workers.