Measuring the impact of minimum wage policies on the economy

This paper undertakes a statistical analysis of the effect of minimum wages (MWs) on different population groups. The underlying question for this analysis relates to the probability bias exerted by certain protective government regulations in terms of the unemployment prospects of specific groups. Several cross-sectional data and a standard human capital model corrected for selectivity bias are used to analyze the case of Chile, where high structural unemployment has been a remarkable feature of the 1970s and 1980s. The main conclusions show that the coverage of the MW is more significant for the young and the less educated, and there exists a negative relationship between human capital stock and actual coverage of MWs. It is also shown that previous statistical analysis of this issue, both in the case of Chile and in industrial countries may have underestimated the negative impact of MWs because they do not correct for selectivity bias.