Minimum Wages and Labor Markets in Colombia: 2006-2010
Pena Marino, Maria Olga
This paper analyzes the effects of minimum wages on employment and the wage distribution in Colombia from 2006 to 2010. Specifically, it uses multinomial logistic regressions to explore the effects of the minimum wage on the probability of being unemployed, employed or inactive and on the odds of being a formal worker, an informal employee or self-employed. Unconditional quantile regressions are employed to observe the effect of the minimum wage on the gender differentiated wage distribution. The study uses data from the new National Household Survey (Gran Encuesta Integrada de Hogares, GEIH) which contains significant changes relative to the previous Survey and has not been used for analytic purposes yet. Results show that increases in the minimum wage raise both the probabilities of being employed and unemployed relative to inactive, but the effect on unemployment is larger. Informal workers are more affected by increases in the minimum wage, although the odds of having either a formal or an informal job relative to being an independent worker decline with a raise in the wage. In terms of wages, for male and female workers, increases in the minimum wage tend to reduce the reported wages at the tails of the distribution, while increasing the salaries of those in the middle, creating a compression effect. In addition a simple simulation showed that increasing the minimum wage results in reductions in wage inequality at the right tail of the distribution but not at the left tail, which has important inequality consequences for poor and low-skilled workers.
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