IMF Working Papers

Minimum Wages, Inequality, and the Informal Sector

By Rafael Machado Parente

July 19, 2024

Download PDF More Formats on IMF eLibrary Order a Print Copy
More formats on IMF eLibrary Order a Print Copy

Preview Citation

Format: Chicago

Rafael Machado Parente. "Minimum Wages, Inequality, and the Informal Sector", IMF Working Papers 2024, 159 (2024), accessed November 21, 2024, https://doi.org/10.5089/9798400282843.001

Export Citation

  • ProCite
  • RefWorks
  • Reference Manager
  • BibTex
  • Zotero
  • EndNote

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

How do minimum wages affect earnings inequality in countries with large informal sectors? I provide reduced-form evidence that the 2000s minimum wage hike in Brazil raised overall inequality by increasing inequality inside the informal sector. I develop a model where heterogeneous firms select into informality to investigate when and how raising the minimum wage can increase inequality. I calibrate the model to Brazil and find that, by generating substantial informality, the increase in the minimum wage raised overall inequality by 6.4%. These results suggest that movements into and out of the informal sector modulate the effects of formal labor legislation.

Subject: Income inequality, Labor, Minimum wages, National accounts, Wage adjustments, Wages

Keywords: Caribbean, Decomposition of informality, Earnings distribution, Earnings histogram, Effects of the minimum wage, Global, Income inequality, Inequality, Informality, Minimum wages, Share decomposition, Wage adjustments, Wages

Publication Details

You May Also Be Interested In...

Libya: Technical Assistance Report-Redesign of Income Tax Forms

November 15, 2024

Growth Convergence and Public Finances of India and its States

November 15, 2024

Colombia: Technical Assistance Report-Report of the Diagnostic Mission on Macro-relevant Climate Change Statistics (July 17–21, 2023)

November 8, 2024

Vietnam: Technical Assistance Report-Report on Residential Property Price Index Mission (April 22-26, 2024)

November 8, 2024