Minimum wage legislation aims to tackle poverty by increasing the wages of the lowest-paid and most vulnerable workers. But evidence on the impact of minimum wages in developing countries, both in the public and private sectors, is not always conclusive. What impact is minimum wage legislation having on jobs and wages in Brazil?

Research from the University of Leicester, in the UK, examines the effect of minimum wage policies on employment and wages in the public and private sectors in Brazil. The research draws on employment survey data collected between1982 and 2000 in the six main metropolitan regions (Salvador, Recife, Belo Horizonte, Rio de Janeiro, Sao Paulo and Porto Alegre).

A minimum wage was first introduced in Brazil in 1940. Since the early 1980s, there has been one minimum wage for all regions and all types of workers. Despite full coverage in theory, some informal sector workers (working in situations where legislation is not complied with) still earn less than the minimum wage.

In Brazil, 15 percent of the work force is employed in the public sector. Of these workers, seven percent earn the minimum wage. The corresponding figure for the private sector is 12.5 percent. But private companies are much less likely to comply with minimum wage legislation than public sector employers.

The research finds that the impact of minimum wage legislation on wages differs across the two sectors, whereas no adverse effect on jobs is found in either sector.

Key findings of the research include:

• Minimum wage legislation increases the wages of people in low-paid jobs in both the public and private sectors in Brazil.
• Workers in very low-paid jobs in the private sector benefit least from the legislation (because of non-compliance).
• Minimum wage legislation does not lead to job losses in either the public or private sector.
• This finding holds true for the most vulnerable workers: women, young workers (15-19 years) and those with little education.
• Public sector employers sometimes reduce hours following minimum wage increases, whereas private sector employers do not reduce hours.

The research shows that the impact on wages is considerable in Brazil. Conversely, the impact on jobs is very small. This is partly because both the public and private sectors have an inelastic labour demand (jobs are not cut in response to higher wage bills). In the case of the private sector, non-compliance is another reason for limited impact.

The researcher concludes that:

• Minimum wage legislation could be a useful way to tackle poverty and inequality in Brazil.
• It may be more effective in reducing inequality in the public sector where compliance is better.
• In the private sector, where compliance is patchy, the poorest workers are likely to benefit least.
• Minimum wage increases could have an adverse effect on public sector finances, which may damage anti-poverty strategies in the longer-term.
• More research is needed on the potential contribution of minimum wage legislation in the fight against poverty.

Source(s):
‘Minimum Wage Effects Across the Private and Public Sectors in Brazil’, Journal of Development Studies 43.4, pages 700-720, by Sara Lemos, 2007 (PDF)

id21 Research Highlight: 08 June 2008

Further Information:
Sara Lemos
Economics Department
University of Leicester
University Road, Leicester LE1 7RH
UK

Tel: +44 116 252 2480
Contact the contributor: sl129@leicester.ac.uk

Economics Department, University of Leicester, UK

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