Minimum Wages, Globalization and Poverty in Honduras

Thomas (Tim) Gindling and Katherine Terrell

No 2497, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: To be competitive in the global economy, some argue that Latin American countries need to reduce or eliminate labor market regulations such as minimum wage legislation because they constrain job creation and hence increase poverty. On the other hand, minimum wage increases can have a direct positive impact on family income and may therefore help to reduce poverty. We take advantage of a complex minimum wage system in a poor country that has been exposed to the forces of globalization to test whether minimum wages are an effective poverty reduction tool in this environment. We find that minimum wage increases in Honduras reduce extreme poverty, with an elasticity of -0.18, and all poverty, with an elasticity of -0.10 (using the national poverty lines). These results are driven entirely by the effect on workers in large private sector firms, where minimum wage legislation is enforced. Increases in the minimum do not affect the incidence of poverty in sectors where minimum wages are not enforced (small firms) or do not apply (self-employed and public sector).

Keywords: minimum wage; poverty; Central America; Honduras (search for similar items in EconPapers)
JEL-codes: J23 J31 J38 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2006-12
New Economics Papers: this item is included in nep-dev and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - revised version published in: World Development, 2010, 38(6), 908-918

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Journal Article: Minimum Wages, Globalization, and Poverty in Honduras (2010)
Working Paper: Minimum Wages, Globalization, and Poverty in Honduras (2008)
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