Minimum Wages and Poverty in Developing Countries : Some Empirical Evidence

This paper examines the relationship between minimum wages and poverty in developing countries. We regress changes in poverty indicators for a group of twenty-two developing countries on minimum wage changes, changes in per capita income, changes in average real wages, human capital investment, and other variables associated with changes in poverty. The regression results show that minimum wages and poverty are inversely related, i.e., an increase (decline) in real minimum wages is accompanied by a fall (rise) in poverty. These results are replicated across different poverty measures (headcount ratio and poverty gap), poverty lines (extreme and moderate poverty lines), and population groups (urban and rural). The inverse relationship is also found when observations are classified into positive growth and negative growth cases, or the sample distinguished the observations for Latin America and Asia. Higher minimum wages, however, are also associated with higher unemployment, so the potential reduction in poverty is not costless from an efficiency point of view