Minimum Wage Impacts on Wages and Hours Worked of Low-Income Workers in Ecuador

Abstract

The minimum wage policy in Ecuador aims to raise the real income of low-wage workers. We analyze the effects of the January 2012 increase in minimum wages on wages and hours worked of low-wage workers. Individuals may select themselves into the occupations of the groups of workers who are covered by the minimum wage legislation, or into those who are not. We apply a difference-in-differences estimation as an identification strategy to account for selection on unobservables. We construct individual panel data from a household panel. The main results suggest a significant and positive effect of the minimum wage increase on the wages of affected workers, increasing their wages by 0.41% to 0.48% for each 1% increase in minimum wages, relative to the earnings of unaffected workers. Results from hours worked highlight several variables that should be accounted for to find significant and sensible estimations that differentiate between full time work and other heterogeneous effects on the treated group.