Informality and minimum wages by cohort in Colombia

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2014-01-01
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Universidad Nacional de Colombia
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This article aims to analyze the effect of minimum wage levels on the decision to join the informal job sector. We estimated a pseudo panel model of engagement in the informal sector using an IV-probit. Our results show that an increased wage gap-the relative difference between observed and minimum wage-has not only a disincentive effect on the probability of joining informality, but also leads to a substitution effect between younger and older cohorts.