Causal role of minimum wages in six Latin American labor markets (original) (raw)

Minimum Wage (MW) regulations are an old tradition in Latin America. Controversy about their effects on inflation, unemployment, wage flexibility and international competitiveness has became central in the context of macroeconomic adjustment. The strategic question analyzed in this paper refers to the role of MWs in moving the entire wage structu~:e up; subsequently, their effects on inflation and employment are also analyzed. The countries studied are Argentina, Brazil, Chile, Colombia, Mexico and Peru; the methodology is based on application of causality tests. Results indicate that there prevails a weak causality link from MWs to average wages in Argentina and Peru, but that this connection is very strong in Chile, Colombia and Mexico As with regard to distributive impact, the tests reveal that MWs do not exert a significant role in shrinking the wage structure, although our results are for some of the countries only. The causality from inflation to MWs proved important in all our countries, but Argentina; the causality the other way around resulted significant in Chile, Colombia, Mexico and Peru. The main implication of the study is that existence of MWs cause aggregate effects only when they are used aggressively as a policy tool, while their actual impact would depend upon the particular targets been sought and the specific institutional role assigned to MW policies.