Minimum Wage Policy and Inequality in Latin America and the Caribbean

Chapter highlights:

• All countries in the region, except Cuba, set Minimum Wages (MW); although there is large heterogeneity across countries in MW fixing and enforcement institutions.

 

• The empirical evidence on the effects of MW on inequality is mixed and difficult to interpret due to the endogeneity of MWs.

 

• Evidence suggests, however, that MW policy should avoid both extremes (i.e., neither too low, nor too high) to produce positive outcomes.

 

• Setting an ambitiously high MW, and/or turning a blind eye to minimum wage violations, is likely to produce labor informality, and higher inequality.