The Effect of the Minimum Wage on Poverty: Evidence from a Quasi-Experiment in Mexico

We analyze the effect on poverty of a significant increase in the minimum wage using a quasi-experimental situation in Mexico. In January 2019, the Mexican government announced an increase in the minimum wage: in most of the country it increased by 16 per cent, while in 43 municipalities along the U.S. border it increased by 100 per cent. Using household surveys and the official method for calculating labor income poverty, we implement difference-in-difference and synthetic control methodologies to estimate whether this policy affected poverty in Mexico. We find that poverty along the border decreased by 2.6-3.0 percentage points (11-13 per cent) due to the larger increase in the minimum wage. Poverty was reduced mainly by reducing the flow from non-poverty into poverty. However, poverty intensity increased, mainly because the policy did not affect the share of families without labor income among the poorest households.