Minimum Wage Compliance and Household Welfare: An analysis of over 1500 Minimum Wages

Kashif Mansoor () and Donal O'Neill
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Kashif Mansoor: Centre for Development Studies, Thiruvananthapuram

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: Minimum wages are increasingly being used in developing countries as a policy to combat exploitation of workers and raise living standards. However, in many developing countries there is a substantial difference between de jure and de facto regulation. We examine the consequences of imperfect compliance by looking at the heterogenous effects of minimum wages across compliance regimes in India from 1999-2011. We find noncompliance rates as high as 90% for some unskilled workers in India. We show that minimum wages have a positive effect on wages, without a corresponding effect on employment. As a result, household consumption increases following increases in the minimum wage; however, compliance matters. The beneficial pass-through of higher minimum wages to wages and consumption is significantly reduced in low compliance regimes. Our findings imply that labour market reforms have the potential to significantly improve workers’ living standards in developing countries but only if accompanied by effect enforcement mechanisms.

Keywords: Minimum Wage; Compliance (search for similar items in EconPapers)
JEL-codes: J38 O15 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2020
New Economics Papers: this item is included in nep-lma
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Citations: View citations in EconPapers (1)

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Working Paper: Minimum Wage Compliance and Household Welfare: An Analysis of over 1500 Minimum Wages (2020)
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