Non-compliance with minimum wage laws in Latin America: The importance of institutional factors

Abstract

Based on household survey data, the author compares the level of minimum wages in 16 Latin American countries with average wages, GDP, poverty lines and purchasing power. He then estimates the degree of non-compliance with minimum wage laws and its correlation with the minimum wage/average wage ratio. Comparing the situation in Chile, Costa Rica, Peru and Uruguay, he concludes that, when the minimum wage is very low or very high relative to average wages, the degree of compliance will depend on the quality of the institutional system, particularly the labour inspection system, in which regard he recommends a number of improvements.