Effects of the minimum wage on the Peruvian labor market

This study examines the effects of the Minimum Living Wage (RMV) on employment and wages in the Peruvian labor market between 1993 and 2003, within the context of labor reforms that promoted easing of labor market flexibility. It employs an empirical approach that combines panel data analysis and discrete choice models, using data from the Permanent Employment Survey. The results show a negative relationship between the RMV and formal employment, indicating that increases in the RMV could lead to job losses, particularly among young people. However, an increase in the RMV also has favorable distributional effects for low-income workers, suggesting that there could be partial compensation for formal job losses through increased earnings for workers earning close to the minimum wage. These findings point to the need for a differentiated minimum wage policy design, taking into account regional variations in the labor market, to improve compliance with minimum wage legislation and its impact on informal employment. (Abstract and audio: Department of Economic Publications)