Urban wage gaps in Colombia and the impact of a national payroll tax policy

Abstract

ABSTRACT In this paper we analyse the unintended effects of a national policy. We explore how national payroll taxes policies can explain changes in wage gaps between cities. To do so, we exploit a payroll tax reform implemented in 2012 in Colombia. Using monthly data between 2011 and 2014, we estimate the effect of this policy in the lower part of the income distribution, and in particular at a window around the minimum wage, relying on a triple-difference estimation. Our results suggest that national policies aimed at reducing informality can have important effects in reducing wage gaps across cities.