Impact of the adjustment of the minimum wage on employment and informality

This paper presents recent empirical evidence on the short-term effects of adjustments to the Minimum Living Wage (RMV) on two real labor market variables: employment and informality. These effects are estimated using probabilistic difference-in-differences models. The results indicate that while there is no effect at the aggregate level, when the sample is disaggregated by income brackets, there is a negative impact on employment and a positive effect on informality rates for some of these wage brackets. Although a net negative effect on employment is demonstrated, this result has two components that act in opposite directions. On the one hand, there is a negative impact on formal employment, which is counteracted—though not fully offset—by a positive impact on informal employment. These effects imply a partial shift of the labor force from the formal to the informal sector for wage earners whose incomes are relatively close to the RMV level. (Audio: Department of Economic Publications)