Consequences of a minimum wage increase in a migrant-sending country

Abstract

A mandated minimum wage supports low-wage workers at the expense of domestic employment and overall welfare in a closed economy. This, however, does not occur in an economy with open labor markets like the Philippines. Our general equilibrium simulations demonstrate that a minimum wage increase would be welfare-improving thanks to remittances earned by, especially, unskilled workers who lose jobs and migrate abroad. Migration would cause currency appreciation and less domestic labor supply which make exports and domestic production weaker, especially in manufacturing, like the Dutch disease. Among four household groups, welfare gains would accrue largely to both the richest and poorest household groups; middle-income groups would gain smaller. Our neutral inequality finding does not imply equal gains by all household groups but is brought by the poorest household group being able to keep up with the second and third-richest household groups, while trailing behind the richest household group.