The Impact of Minimum Wages on Wages, Work and Poverty in Nicaragua

49 Pages Posted: 23 May 2011

See all articles by Enrique Alaniz

Enrique Alaniz

International Foundation for Global Economic Challenge (FIDEG)

T. H. Gindling

University of Maryland, Baltimore County; IZA Institute of Labor Economics

Katherine Terrell

Stephen M. Ross School of Business at the University of Michigan; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Gerald R. Ford School of Public Policy

Abstract

We use an individual-level panel data set to study the impact of changes in legal minimum wages on a host of labor market outcomes in Nicaragua including: a) wages and employment, b) transitions of workers across jobs (in the covered and uncovered sectors) and employment status (unemployment and out of the labor force), and c) transitions into and out of poverty. We find that changes in the legal minimum wage affect only those workers whose initial wage (before the change in minimum wages) is close to the minimum. For example, increases in the legal minimum wage lead to significant increases in the wages and decreases in employment of private covered sector workers who have wages within 20% of the minimum wage before the change, but have no significant impact on wages in other parts of the distribution. The estimates from the employment transition equations suggest that the decrease in covered private sector employment is due to a combination of layoffs and reductions in hiring. Most workers who lose their jobs in the covered private sector as a result of higher legal minimum wages leave the labor force or go into unpaid family work; a smaller proportion find work in the public sector. Our analysis of the relationship between the minimum wage and household income finds: a) increases in legal minimum wages increase the probability that a poor worker's family will move out of poverty, and b) increases in legal minimum wages are more likely to reduce the incidence of poverty if they impact the head of the household rather than the non-head.

Keywords: minimum wages, employment, poverty

JEL Classification: J3, O17

Suggested Citation

Alaniz, Enrique and Gindling, Thomas and Terrell, Katherine, The Impact of Minimum Wages on Wages, Work and Poverty in Nicaragua. IZA Discussion Paper No. 5702, Available at SSRN: https://ssrn.com/abstract=1849457

Enrique Alaniz (Contact Author)

International Foundation for Global Economic Challenge (FIDEG) ( email )

Managua
Nicaragua
(505)-22668708 (Phone)

Thomas Gindling

University of Maryland, Baltimore County ( email )

1000 Hilltop Circle
Baltimore, MD 21250
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Katherine Terrell

Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Gerald R. Ford School of Public Policy ( email )

735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
56
Abstract Views
517
rank
441,365
PlumX Metrics