Do Minimum Wages Reduce Employment? Some Empirical Evidence from Bangladesh

Abstract

Minimum wage policy is practiced in many countries with the intention of establishing a wage floor for low-wage workers having less bargaining power in the labour market. However, there is some evidence that such well-intended policy might have adverse effects on employment. This study employs a basic model where firm level employment data for a sample of 27 firms for the period 2000-2015 is used to analyse the effects of changes in minimum wage on employment in the readymade garments industry in Bangladesh. The main results suggest that higher minimum wages result in higher formal employment, particularly female employment, in these firms. The major policy implication of the study is to support the enforcement of suitable regulation to ensure competitive and fair wages as well as workers welfare.