Minimum Wage and Income Ethnic-Gaps: Who are the winners?

Abstract

Abstract This paper attempts to answer whether minimum wage increases help to close income gaps across ethnic groups in Peru. To answer this question, I study the period 2004–2019 in Peru and estimate the effects of minimum wage increases based on nominal minimum wage, real minimum wage, and Kaitz index terms. To estimate these effects, I use several econometric strategies, but mainly I rely on IV-OLS and IV-Probit. I find that the minimum wage has generally benefited whites, mestizos, and Andeans, but especially the latter, which has boosted the closing of ethnic income gaps. When I delve deeper into the types of workers, I find that these significant effects have been mainly on the Andean people in the lowest income bracket, that is, on the most vulnerable population or dependent on changes in the minimum wage. However, it has benefited a specific population group, the high-skilled mestizos, which indicates that while the gap is reduced on the lower side, it opens on the higher side. Finally, when I analyze the probability of being employed, having informal employment, and having stable employment, I find small and non-significant impacts in most of the estimates. JEL codes: E24, E26, J46