{
  "title": "Minimum Wages, Inequality, and the Informal Sector",
  "publication": "IMF Working Papers, July 19, 2024",
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  "summary": "How do minimum wages affect earnings inequality in countries with large informal sectors? I provide reduced-form evidence that the 2000s minimum wage hike in Brazil raised overall inequality by increasing inequality inside the informal sector.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Research question: How do minimum wages affect earnings inequality in countries with large informal sectors?\n- Empirical finding (reduced-form): The 2000s minimum wage hike in Brazil raised overall inequality by increasing inequality inside the informal sector.\n- Model contribution: A model where heterogeneous firms select into informality is developed to investigate when and how raising the minimum wage can increase inequality.\n- Calibration result: Calibrated to Brazil, the model finds that, by generating substantial informality, the increase in the minimum wage raised overall inequality by 6.4%."
    },
    {
      "heading": "Key Findings and Evidence",
      "content": "- The 2000s minimum wage hike in Brazil is associated with:\n  - An increase in overall earnings inequality.\n  - An increase in inequality inside the informal sector.\n- Quantified impact from model calibration:\n  - Overall inequality increased by 6.4 percent due to the minimum wage increase, with informality playing a central role."
    },
    {
      "heading": "Model and Methodology",
      "content": "- Model structure:\n  - Firms are heterogeneous and choose whether to operate formally or informally (selection into informality).\n  - The model is used to analyze the mechanisms through which minimum wage increases can affect inequality.\n- Empirical approach:\n  - Reduced-form evidence is provided linking the 2000s minimum wage hike in Brazil to distributional outcomes, particularly within the informal sector.\n- Calibration:\n  - The model is calibrated to Brazil to quantify the contribution of informality to the observed increase in inequality."
    },
    {
      "heading": "Policy Implications and Interpretation",
      "content": "- Mechanism emphasized:\n  - Movements into and out of the informal sector modulate the effects of formal labor legislation, such as minimum wage hikes.\n- Implication for policy design:\n  - Policymakers aiming to affect inequality through minimum wage policy should account for the size and dynamics of the informal sector, as standard formal-sector effects may be offset or reversed when informality responds to wage regulation.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2024/07/19/minimum-wages-inequality-and-the-informal-sector-552066"
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    "Authors: Rafael Machado Parente",
    "Published: July 19, 2024",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400282843.001",
    "Research question: How do minimum wages affect earnings inequality in countries with large informal sectors?",
    "Empirical finding (reduced-form): The 2000s minimum wage hike in Brazil raised overall inequality by increasing inequality inside the informal sector.",
    "Model contribution: A model where heterogeneous firms select into informality is developed to investigate when and how raising the minimum wage can increase inequality.",
    "Calibration result: Calibrated to Brazil, the model finds that, by generating substantial informality, the increase in the minimum wage raised overall inequality by 6.4%.",
    "The 2000s minimum wage hike in Brazil is associated with:",
    "Quantified impact from model calibration:",
    "Model structure:",
    "Empirical approach:",
    "Calibration:",
    "Mechanism emphasized:",
    "Implication for policy design:",
    "**Working Paper**"
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