| Name: | Description: | Size: | Format: | |
|---|---|---|---|---|
| 289.09 KB | Adobe PDF |
Advisor(s)
Abstract(s)
A large body of empirical literature indicates that, contrary to predictions from economic theory, wages
in the informal sector increase after a minimum wage hike. This phenomenon was so far explained as
a byproduct of a signal (a lighthouse) conveyed by statutory minima to wage setting in the informal
sector. A simple matching model shows that an increase in wages in the informal sector may also be
induced by significant sorting and composition effects between the formal and the shadow sectors in the
aftermath of the increase in the minimum wage. Using data on Brazil, we find that sorting accounts for
at least one third of the increase in average wages in the informal sector after a minimum wage hike.
This contribution of endogenous sorting to wage dynamics in the informal sector is also increasing over
time.
Description
Keywords
Minimum wage Lighthouse effect Sorting
Pedagogical Context
Citation
BOERI, Tito; GARIBALDI, Pietro; RIBEIRO, Marta - The Lighthouse Effect and Beyond. Review of Income and Wealth. ISSN 1475-4991. Series 57, Special Issue, May (2011), p. S54-S58
Publisher
Blackwell Publishing