Mauricio Larrain

Age-differentiated Minimum Wages in Developing Countries

Coauthor(s): Joaquin Poblete.


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The fact that minimum wages seem especially binding for young workers has led some countries to adopt age-differentiated minimum wages. We develop a dynamic competitive two-sector labor market model where workers with heterogeneous initial skills gain productivity through experience. We compare two equally binding schemes of single and age-differentiated minimum wages, and find that although differentiated minimum wages result in a more equal distribution of income, such a scheme creates a more unequal distribution of wealth by forcing less skilled workers to remain longer in the uncovered sector. We also show that relaxing minimum wage solely for young workers reduces youth unemployment but harms the less skilled ones.

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Source: Journal of Development Economics
Exact Citation:
Larrain, Mauricio, and Joaquin Poblete. "Age-differentiated Minimum Wages in Developing Countries." Journal of Development Economics 84, no. 2 (2012): 777-97.
Volume: 84
Number: 2
Pages: 777-97
Date: 2012