Wages in Brazil's Traditional Industry: The Impact of the Minimum Wage

Abstract

This study investigates the determinants of wages in Brazil's traditional industry from 1996 to 2015, with particular emphasis on the effect of the minimum wage. Characterized by low technological intensity and a high capacity to absorb low-skilled labor, this industry plays a key role in employment. Both static and dynamic panel data models were estimated. The tests indicated that the dynamic panel model was the most appropriate. The results suggest that the minimum wage has a significant effect on wages in the traditional industry. We conclude that the minimum wage exerts a meaningful influence on earnings in the traditional industrial sector and, by extension, on the income and welfare of its workforce. Nonetheless, in the medium and long run, policies aimed at increasing labor productivity—alongside improvements in the education system—should be expanded and strengthened.