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Informality and minimum wages by cohort in Colombia

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  • Jhon James Mora
  • Juan Muro

Abstract

This article aims to analyze the effect of minimum wage levels on the decision to join the informal job sector. We estimated a pseudo panel model of engagement in the informal sector using an IV-probit. Our results show that an increased wage gap—the relative difference between observed and minimum wage—has not only a disincentive effect on the probability of joining informality, but also leads to a substitution effect between younger and older cohorts. ***** Este artículo busca analizar el efecto de los niveles del salario mínimo en la decisión de unirse al sector del empleo informal. Estimamos un modelo pseudo panel de participación en el sector informal usando un probit-IV. Nuestros resultados muestran que la creciente brecha salarial –la diferencia relativa entre el salario observado y el salario mínimo– no solo tiene un efecto de desincentivo en la probabilidad de unirse a la informalidad, sino que además lleva a un efecto de sustitución entre las cohortes más jóvenes y las de mayor edad.

Suggested Citation

  • Jhon James Mora & Juan Muro, 2014. "Informality and minimum wages by cohort in Colombia," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, August.
    • Handle: RePEc:col:000093:012113
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    Cited by:

    1. José Pulido & Hernando Vargas-Herrera & Juan J. Ospina-Tejeiro, 2023. "The labor market in Colombia: Structural features and the role of wages in the post-pandemic inflationary surge," Borradores de Economia 1232, Banco de la Republica de Colombia.
    2. Jhon James MORA & Andrés CENDALES, 2018. "Employment And Development In Cali And The Valley Of Cauca: Evolution And A Spatial Econometric Analysis," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 18(1), pages 5-12.
    3. Central Bank of Colombia, 2023. "The labour market in Colombia: trends, cyclical patterns and the role of wages in the recent inflationary surge," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation and labour markets, volume 127, pages 103-134, Bank for International Settlements.
    4. Jhon James Mora & Juan Muro, 2017. "Dynamic Effects of the Minimum Wage on Informality in Colombia," LABOUR, CEIS, vol. 31(1), pages 59-72, March.
    5. Botello Penaloza, Héctor Alberto & Guerrero Rincón, Isaac, 2021. "Impacto de las acciones de mitigación del COVID-19 en la informalidad laboral rural en Colombia," Revista Tendencias, Universidad de Narino, vol. 22(2), pages 182-212, July.

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    More about this item

    Keywords

    Informality; minimum wages; instrumental variable probit; pseudopanel; sample selection bias.;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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