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dc.contributor.authorBoeri, Titoen_US
dc.contributor.authorGaribaldi, Pietroen_US
dc.contributor.authorRibeiro, Martaen_US
dc.description.abstractA large body of empirical literature indicates that, contrary to predictions from economic theory, wages in the informal sector increase after any minimum wage hike. This phenomenon was so far explained as a byproduct of a signal conveyed by statutory minimum wages to wage setting in the informal sector, as if workers in the latter had significant bargaining power. A simple matching model shows that the lighthouse effect may be induced by significant sorting and composition effects between the formal and shadow sectors in the aftermath of the increase in the minimum wage. Using data on Brazil, we test this alternative explanation of the lighthouse effect, associated with the endogenous sorting of workers by skill in the formal and informal sectors. We find that sorting accounts for at least one third of the increase in average wages in the informal sector after the minimum wage hike. This contribution of sorting to wage dynamics in the informal sector is also increasing over time.en_US
dc.publisherInstitute for the Study of Labor (IZA) Bonnen_US
dc.relation.ispartofseriesDiscussion paper series // Forschungsinstitut zur Zukunft der Arbeit 4890en_US
dc.subject.keywordMinimum wageen_US
dc.subject.keywordlighthouse effecten_US
dc.subject.stwInformeller Sektoren_US
dc.titleBehind the lighthouse effecten_US
dc.typeWorking Paperen_US
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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