The Journal of Economic Inequality

, Volume 6, Issue 1, pp 57–71 | Cite as

Can a minimum wage increase have an adverse impact on inequality? Evidence from two Latin American economies

  • Diego F. Angel-Urdinola


This paper uses a semiparametric model to analyze the impact of an increase in the real minimum wage on inequality in Colombia between 1995 and 1999 and in Paraguay between 1993 and 2000–2001. Simulations suggest that if the employment effects of the minimum wage increase are ignored, the underlying policies would contribute to reduce earnings inequality in Colombia and would be inequality neutral in Paraguay. By considering the drop in wages of those who lost their jobs, simulations suggest that in both countries the policy in question would increase earnings inequality under some assumptions about the employment elasticity of the minimum wage and the new level of earnings unemployed workers rely upon. While these findings do not mean that minimum wage increases in LDCs (Less Developed Countries) necessarily have adverse distributional affects, they suggest that minimum wage policy should be implemented with care depending on how sensitive employment is to wage increases.

Key words

minimum wages earnings inequality distribution of wages Latin America 

JEL Classification

J38 J23 D63 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Addison, J., Blackburn, M.: Minimum wages and poverty. Ind. Labor Relat. Rev. 53(2), 393–409 (1999)CrossRefGoogle Scholar
  2. 2.
    Angel-Urdinola, D., Wodon, Q.: The impact on inequality of raising the minimum wage: gap-narrowing and reranking effects. LABOUR: Review of Labor economics and Industrial Relations 18, 2 (2004)Google Scholar
  3. 3.
    Brown, C., Gilroy, C., Kohen, A.: The effect of the minimum wage on employment and unemployment. J. Econ. Theory 20, 487–528 (1982)Google Scholar
  4. 4.
    Card, D., Krueger, A.: Myth and Measurement: The New Economics of the Minimum Wage. Princeton University Press, Princeton, NJ (1995)Google Scholar
  5. 5.
    Card, C., Ashenfelter, O.: Minimum wages, employment and the distribution of income. Handbook of Labor Economics 3b, chapter 32, (1999)Google Scholar
  6. 6.
    DiNardo, J., Fortin, N., Lemieux, T.: Labor market institutions and the distribution of wages, 1973–1992: a semi parametric approach. Econometrica 64(5), 1001–1144 (1996)CrossRefGoogle Scholar
  7. 7.
    Fajnzylber, P.: Minimumwage effects throughout the wage distribution: evidence from Brazil’s formal and informal sectors. Working paper, Department of Economics and CEDEPLAR, Universidad Federal de Minas Gerais. Belo Horizonte, Brazil (2001)Google Scholar
  8. 8.
    Horrigan, W., Mincy, R.: In: Danziger S., Gottschalk, P. (eds.) Uneven Ties. Russell Sage Foundation, New York (1993)Google Scholar
  9. 9.
    Kristensen, N., Cunningham, W.: Do minimum wages in Latin America and the Caribbean matter? Evidence from 19 countries. Working paper no. 3870, World Bank. Washington, D.C. (2006)Google Scholar
  10. 10.
    Lee, D.: Wage inequality in the United States during the 1980s: Rising dispersion or falling minimum wage? Q. J. Econ. 114(3), 977–1023 (1999)CrossRefGoogle Scholar
  11. 11.
    Machin, S., Manning, A.: The effects of minimum wages on wage dispersion and employment: evidence from the U.K. Wage Councils. Ind. Labor Relat. Rev. 47(2), 319–329 (1994)CrossRefGoogle Scholar
  12. 12.
    Maloney, W., Nuñez, J.: Measuring the impact of minimum wages. Evidence from Latin America. Working paper 9800. National Bureau of Economic Research. Cambridge, MA (2003)Google Scholar
  13. 13.
    Meyer, R., Wise, D.: Discontinuous distributions and missing persons: the minimum wage and unemployed youth. Econometrica 51(6), 1677–1698 (1983)CrossRefGoogle Scholar
  14. 14.
    Mincy, R.: Raising the minimum wage: effects on family poverty. Mon. Labor Rev. 113(7), 18–25 (1991)Google Scholar
  15. 15.
    Neumark, D., Schweitzer, M., Washer, W.: The effects of minimum wages throughout the wage distribution. Working paper 7519, National Bureau of Economic Research. Cambridge, MA (2000)Google Scholar
  16. 16.
    Silverman, B.: Density Estimation for Statistics and Data Analysis. Chapman and Hall, London (1986)Google Scholar

Copyright information

© Springer Science+Business Media, Inc. 2007

Authors and Affiliations

  1. 1.The World BankWashingtonUSA

Personalised recommendations