Minimum Wages and Informality

We thank David Card, Rucker Johnson, Hilary Hoynes, Jesse Rothstein, and Emmanuel Saez for their comments on an earlier version of this paper. Clément de Chaisemartin, Patrick Kline, and Attila Lindner provided many helpful suggestions on the present version. We thank Suresh Naidu for fruitful discussions of labor market models of informality. We also thank numerous participants of seminars and conferences at UC Berkeley (Econ Department and GSPP), PSE, Sciences-Po, HEC, Georgetown University, the World Bank, the NBER SI Development, the CEPR/BREAD Workshop in Development Economics 2022, University of Bonn, Princeton, Columbia University, Claremont Colleges (Los Angeles), SoCCAM Conference, University of British Columbia, the EALE-SOLE-AASLE Conference, Bocconi University, LSE, UCL, University of Copenhagen, Tilburg University, the Belgian Day for Labor Economics, the IMF, EIEF, University of Roma Tor Vergata, INSEAD, University of Mannheim, and IIES Stockholm University. Dylan Black, Cedric Christensen, Bernardo Esteves, Maria Medeiros, Nathan Oki, Roberto Hsu Rocha, Pedro Henrique Cavalcanti Rocha, Helton Suzuki, and Arthur Weiss provided excellent research assistance. The authors gratefully acknowledge financial support from the UCBerkeley Institute for Research on Labor and Employment, the UCBerkeley Opportunity Lab, and the British Academy. An early version of this paper was released in 2021 under the title “Racial Inequality, Minimum Wage Spillovers, and the Informal Sector” before evolving into two separate papers: this one, “Minimum Wages and Informality,” first released in October 2025 under this title, and a companion paper on racial inequality under the original title, which is yet to be released. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

• November 7, 2025