Low-skilled workers and the effects of minimum wage in a developing country: Evidence based on a density-discontinuity approach

We estimated the impact of the minimum wage on wages, unemployment, and formal-informal sector mobility for women in the domestic-work sector in Uruguay. Applying the density-discontinuity design developed by Jales (2017), we used cross-sectional data for the period 2006-2016 from the National Household Survey and found that the minimum wage had significant effects on labor outcomes, with almost 20% of women increasing their wages to reach the minimum. This effect was observed in both the formal and informal sector, though the latter was not covered by the policy. We also showed a decline in employment in the domestic sector as well as a significant effect on formal-informal sector mobility with negative impacts on formal employment. We present suggestive evidence those effects were offset by other labor policies undertaken in the analysis period. (c) 2020 Elsevier Ltd. All rights reserved.