published in: B.E. Journal of Economic Analysis and Policy: Contributions to Economic Analysis and Policy, 2005, 4 (1), Art.16
Following the early 1980s apparent consensus, there has been a controversial debate in the
literature over the direction of the minimum wage employment effect. Explanations to nonnegative
effects range from theoretical to empirical identification and data issues. An
explanation, however, that has not been sufficiently explored is that a non-negative effect
might be an upward biased estimate of a truly negative effect, resulting from the
simultaneous determination of the minimum wage and employment. This paper estimates the
employment effect of the minimum wage using a number of political variables – not
previously used in the literature – as excluded exogenous instruments to control for the
endogeneity of the minimum wage variable. The data used is an under-explored Brazilian
monthly household survey from 1982 to 2000. Robust results indicate that an increase in the
minimum wage has very small adverse effects on employment.
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