revised version published as 'The effects of multiple minimum wages throughout the labor market: The case of Costa Rica ' in: Labour Economics, 2007, 14 (3), 485-511
This paper investigates the effects of legal minimum wages on wages, employment, hours
worked and monthly earnings among workers covered by minimum wage legislation as well
as those for whom it does not apply (the uncovered sector) in Costa Rica. This country’s
large uncovered sector and complex minimum wage policy, which has for decades set
numerous wages throughout the wage distribution, provide a stimulating counterpoint to the
U.S. framework for the analysis of the impact of minimum wages. We find that legal minimum
wages have a significant positive effect on the wages of workers in the covered sector (with
an elasticity of 0.10) but no effect on wages of workers in the uncovered sector. We also find
that a 10% increase in minimum wages lowers employment in the covered sector by 1.09%
and decreases the average number of hours worked of those who remain in the covered
sector by about 0.6%. Finally, we show that despite the wide range of minimum wages, the
largest impact on the wages and employment of covered sector workers is in the lower half of
the distribution.
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