We show that a dynamic general equilibrium model with efficiency wages and endogenous capital accumulation in both the formal and (non-agricultural) informal sectors can explain the full range of confounding stylized facts associated with minimum wage laws in less developed countries.

Offering evidence from both detailed individual country studies and homogenized statistics across the Latin American and Caribbean region, this book examines the impact of the minimum wage on wages, employment, poverty, income distribution and government budgets in the context of a large informal sector and predominantly unskilled workforces.

David Card and Alan B. Krueger have already made national news with their pathbreaking research on the minimum wage. Here they present a powerful new challenge to the conventional view that higher minimum wages reduce jobs for low-wage workers. In a work that has important implications for public policy as well as for the direction of economic research, the authors put standard economic theory to the test, using data from a series of recent episodes, including the 1992 increase in New Jersey's minimum wage, the 1988 rise in California's minimum wage, and the 1990-91 increases in the federal minimum wage. In each case they present a battery of evidence showing that increases in the minimum wage lead to increases in pay, but no loss in jobs. A distinctive feature of Card and Krueger's research is the use of empirical methods borrowed from the natural sciences, including comparisons between the "treatment" and "control" groups formed when the minimum wage rises for some workers but not for others. In addition, the authors critically reexamine the previous literature on the minimum wage and find that it, too, lacks support for the claim that a higher minimum wage cuts jobs. Finally, the effects of the minimum wage on family earnings, poverty outcomes, and the stock market valuation of low-wage employers are documented. Overall, this book calls into question the standard model of the labor market that has dominated economists' thinking on the minimum wage. In addition, it will shift the terms of the debate on the minimum wage in Washington and in state legislatures throughout the country. With a new preface discussing new data, Myth and Measurement continues to shift the terms of the debate on the minimum wage.

There is considerable debate on the level and effects of minimum wages for many decades. However, most of the studies are conducted in developed countries. This chapter first reviews the theoretical frameworks of anticipated effects of a minimum wage increase on wages and employment in developing countries. The empirical challenges are then discussed, including potential heterogeneity, simultaneity (or endogeneity) between employment and minimum wages, and possible omitted variable bias, taking into consideration of the different labour market structures and labour market institutions in developing countries, particularly the level of informal sector, extent of binding minimum wages, level of enforcement, and the vulnerability of the workers impacted. Evidence from BRICS members (Brazil, Russia, India, China, and South Africa) are reviewed and discussed. Surprisingly, there is substantial evidence of positive wage effects in both formal and informal sectors, although the adverse effects on employment are generally modest in the formal sector, and almost non-existent in the informal sector. However, when minimum wages are binding and enforced, studies focusing on vulnerable workers do find significant and positive wage effects and strong disemployment effects, implying that the classic trade-off of minimum wages between higher wages and lower employment does occur in developing countries.

Examines the relationship between minimum wages and poverty.

CONTENTS: Introduction; Poverty Alleviation; Efficiency; Conclusions; Summary.

Offering evidence from both detailed individual country studies and homogenized statistics across the Latin American and Caribbean region, this book examines the impact of the minimum wage on wages, employment, poverty, income distribution and government budgets in the context of a large informal sector and predominantly unskilled workforces.