Minimum Wages and the Welfare of Workers in Honduras.pdf

Minimum Wages and the Welfare of Workers in Honduras T. H. Gindling Economics Department University of Maryland, Baltimore County Katherine Terrell Ross School of Business and Ford School of Public Policy University of Michigan May 2007 Abstract: Taking advantage of a complex minimum wage structure in Honduras, this paper examines how changes in minimum wages over the 1990-2004 period affect unemployment as well as the employment and average wages of workers in different sectors of the economy: medium and large-scale firms v. small firms in the private sector (where minimum wage legislation applies) and for civil servants and self-employed workers (where it does not apply). The evidence suggests that minimum wages are effectively enforced only in medium and large-scale firms, where a 1% increase in the minimum wage leads to an increase of 0.29% in the average wage and a reduction in employment of -0.46%. There is evidence that increases in the private sector minimum wage are emulated in public sector wages, but there are no disemployment effects there. We also find some evidence that a higher minimum wage may increase unemployment. There are no discernable effects of minimum wages on the wages workers in small-firms or the self-employed. Higher minimum wages have larger positive effects on the wages of the primary and secondary educated but the largest disemployment effect is on workers with primary education in large private firms. W