The Minimum Wage Puzzle in Less Developed Countries: Reconciling Theory and Evidence

By Christopher Adam and Edward Buffie

http://d.repec.org/n?u=RePEc:imf:imfwpa:20/23&r=dge

We show that a dynamic general equilibrium model with efficiency wages and endogenous capital accumulation in both the formal and (non-agricultural) informal sectors can explain the full range of confounding stylized facts associated with minimum wage laws in less developed countries.

I am actually surprised that minimum wage laws have any bite in countries where the informal sector is substantial and easy to access.

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