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...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| 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 |
| Summary: | 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. |
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