Do Minimum Wages Reduce Employment in Developing Countries? A Survey and Exploration of Conflicting Evidence
Evidence from studies of the employment effects of minimum wages in developing countries is mixed. One interpretation is that there is simply no clear evidence of disemployment effects in developing countries. Instead, however, we find evidence that the heterogeneity is systematic, with estimated effects more consistently negative in studies with relatively more features for which institutional factors and the competitive model more strongly predict negative effects. These features include whether studies: (i) focus on vulnerable workers; (ii) use data for the formal sector; (iii) cover countries where minimum wage laws are strongly enforced; and (iv) estimate effects for countries and periods with binding minimum wages.
We are grateful for helpful comments from Haroon Bhorat, Stijn Broecke, Ravi Kanbur, Marieke Vandeweyer, seminar participants at Beijing Normal University, Renmin University, and DIW-Berlin, and anonymous reviewers. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
David Neumark & Luis Felipe Munguía Corella, 2021. "Do minimum wages reduce employment in developing countries? A survey and exploration of conflicting evidence," World Development, vol 137.