Title

Minimum Wages and Informality

Author(s)

Ellora Derenoncourt Ellora Derenoncourt (Princeton University)

François Gerard François Gerard (University College of London & Institute for Fiscal Studies)

Lorenzo Lorenzo Lagos Lorenzo Lorenzo Lagos (Brown University)

Claire Montialoux Claire Montialoux (CNRS & Sciences-Po)

Abstract

How do minimum wages affect informality? We study the near-doubling of the real minimum wage from 2000 to 2009 in Brazil, where 46% of the workforce is informal. Using labor force surveys covering the informal sector, we show the minimum wage exhibits near full pass through to informal employees working in formal firms, about half of all informal employees. The formal-to-informal reallocation elasticity with respect to the formal wage is small: -0.28. Our findings illustrate how minimum wages can positively affect living standards for workers thought beyond the reach of labor law, a sizable share of the workforce in developing economies.

Creation Date

2025-10

Section URL ID

Paper Number

664

URL

https://irs.princeton.edu/publications/working-papers/664

File Function

Jel

J23, J46, J88

Keyword(s)

Brazil

Suppress

false

Series

1