EFECTOS DEL INCREMENTO DE LA REMUNERACION MÍNIMA VITAL SOBRE EL EMPLEO Y LOS INGRESOS LABORALES

Following the studies of Jaramillo (2004), Céspedes (2006) and Del Valle (2009), the present research evaluates the short term effects of the increase of the minimum wage on employment and labour income in Lima Metropolitana. The contribution of the paper consists in modeling the labour market in three sectors: formal employment, “competitive” informal employment and “subsistence” informal employment. This will allow us to identify the differentiated effects of the minimum wage in the labour market. We propose that the increase in the minimum wage imposes a higher barrier to the demand of low skilled labour, expulsing these workers to subsistence activities in the informal sector, while employment in the “competitive” informal sector remains unaffected. Consequently, we expect a higher labour income in the formal sector, a lower labour income in the “subsistence” informal sector due to the increased competence, and no significant changes in the “competitive” informal sector. We design a stratified propensity score matching methodology for the empirical identification of the “competitive” and “subsistence” informal sectors, and follow Neumark (1994) for the impact assessment of the minimum wage. The results confirm the hypothesis about the effects on employment, but fail to confirm those about the effects on labour income.