Minimum-wage effects, compliance, and firm size in a developing economy: Evidence from Colombia
By: Garica, Gustavo A. Posso, Christian and Arango, Salome
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Material type: 
BookPublisher: The Developing Economies Description: 63(4), Dec, 2025: p.301-327.
In:
The Developing EconomiesSummary: Minimum-wage legislation is a standard policy in most developing countries. Nonetheless, the consequences of increases in the minimum-wage are not conclusive. This paper examines the heterogeneous effects of minimum-wage, considering the imperfect enforcement of minimum-wage policy and different compliance levels across the firm sizes and types of workers, analyzing the Colombian case. Our identification strategy uses policy circumstances to set the minimum-wage associated with arbitrary decisions not explained by the fundamentals determining the minimum-wage. Using instrumental variable techniques, we show that a 10% increase in the minimum-wage reduces the employment rate by 1.27 percentage points and 0.70 percentage points in the proportion of hours worked. Consistent with a theoretical model of minimum-wage policy with imperfect competition and enforcement, the negative minimum-wage effect is larger in firms with higher levels of compliance—that is, medium- and large-sized firms, and within these, the unskilled workers are the most affected.- Reproduced
https://onlinelibrary.wiley.com/doi/10.1111/deve.12443
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | 63(4), Dec, 2025: p.301-327 | Available | AR138418 |
Minimum-wage legislation is a standard policy in most developing countries. Nonetheless, the consequences of increases in the minimum-wage are not conclusive. This paper examines the heterogeneous effects of minimum-wage, considering the imperfect enforcement of minimum-wage policy and different compliance levels across the firm sizes and types of workers, analyzing the Colombian case. Our identification strategy uses policy circumstances to set the minimum-wage associated with arbitrary decisions not explained by the fundamentals determining the minimum-wage. Using instrumental variable techniques, we show that a 10% increase in the minimum-wage reduces the employment rate by 1.27 percentage points and 0.70 percentage points in the proportion of hours worked. Consistent with a theoretical model of minimum-wage policy with imperfect competition and enforcement, the negative minimum-wage effect is larger in firms with higher levels of compliance—that is, medium- and large-sized firms, and within these, the unskilled workers are the most affected.- Reproduced
https://onlinelibrary.wiley.com/doi/10.1111/deve.12443
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