The impact of minimum wages in Mexico and Colombia

Divergent trends in the real value of the minimum wage in Mexico and Colombia in the 1980s provide an opportunity for evaluating the impact of minimum wages on developing economies. Using panel data for each country, substantial disemployment effects of minimum wages are found in Colombia, where the impact is estimated at roughly 2%-12% over the 1981-87 period. In Mexico, minimum wages have had no effect on wages or employment in the formal sector. The key explanation for the different impact is that the minimum wage is an effective wage in Colombia but not in Mexico.