The lighthouse effect of the minimum wage in the wage structure: Evidence for Mexico

Abstract

This research analyses the minimum wage increases in Mexico in 2012 and 2015; the goal is to identify its effects in the wage structure and in employment. The data comes from administrative records of imss from 2000 to 2018, and henceforth the study is restricted to the formal sector of the economy. Those changes represent a natural experiment due to its differentiated effect across municipalities. Additionally, we employ the synthetic control method to balance characteristics between treatment and control municipalities. The results indicate that the minimum wage is relevant to the lower part of the distribution. Firstly, the minimum wage increases are reflected practically one to one in the first five quantiles of the distribution. Secondly, when it compares treated zones against control areas, it is observed that the minimum wage had an effect on the salary structure, on average, up to the quantile 10 of the distribution. Finally, there is no effect of the minimum wage on employment at the time of the interventions of 2012 and 2015. There is a preliminary discussion of the lighthouse effect of the minimum wage increase in 2019.