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CEP discussion paper
Minimum Wages and Earnings Inequality in Urban Mexico. Revisiting the Evidence
Mariano Bosch and Marco Manacorda
July 2008
Paper No' CEPDP0880:
Full Paper (pdf)

JEL Classification: O15; O17

Tags: minimum wage; inequality; informality; mexico

This paper explores the contribution of the minimum wage to the well documented rise in earnings inequality in Mexico between the late 1980 and the late 1990s. In contrast to the view that sees minimum wages as an ineffective redistributive tool in developing countries, we find that the deterioration in the real bite of the minimum wage is responsible for the entire rise in inequality at the bottom of the distribution. Our result challenges the widespread perception that trade induced shocks are the single most important factor behind the recent rise in earnings inequality in several less developed economies.