Minimum Wages for Domestic Workers : Impact Evaluation of the Indian Experience

What impact does minimum wage legislation have on wages and employment opportunities in an informal sector in a developing country? The paper answers this question in the context of minimum wage legislation for domestic workers in India over the period of 2004–2012. Combining, matching procedure with difference-in-difference estimation approach, supported by extensive robustness checks, the paper estimates both the short-run and the long-run impact of the legislation on real wages and employment. Results show a positive impact of the legislation on real wages in the short-run, while there is limited evidence of this effect persisting in the long-run. Further, the legislation did not seem to have any impact at the extensive margin on the probability of being employed as a domestic worker over short or long run. Our analysis further reveals that the wages of majority of workers remain below the minimum wage. Available evidence from the ground, in line with theoretical predictions, point towards weak enforcement of the legislation as the potential driving factor of observed results. As India recently extended national level minimum wage for all workers, the paper provides a cautionary tale on the potential pitfalls of implementation of this legislation in informal sector and suggests some ways to overcome the same