The Impact of Minimum Wages on Wage Inequality and Employment in the Formal and Informal Sector in Costa Rica

William Davidson Institute Working Paper 479

3. FINDINGS

3.1 Trend of the Wage Inequality (1976-1992)

In Figure 2 we present plots of the three measures of inequality in the hourly labour
earnings of all workers. In Figure 3 we plot these measures for the covered and uncovered
workers. The plots reveal the following patterns:

a) Earnings inequality for the whole population fell over the 1982-1992 period. This is
the case for all three measures of inequality but the decline is most dramatic in the
coefficient of variation. (Inequality was very high in 1981-1982 when there was very
high inflation.)

b) The hourly earnings of covered workers are distributed more equally than those of
the uncovered sector in every year.

c) The level of earnings inequality fell by a greater percentage in the covered sector than
in the uncovered sector.

An examination of the Gini for the covered and uncovered/self-employed workers in each
of the seven industries (Figures 4 and 5, respectively) indicate the same overall declining pattern,
but a more erratic pattern among the industries in 1981 and 1982, when inflation was high. It is
also noteworthy that the relative level of inequality among the industries is not consistent across
the covered and uncovered sectors.

3.2 Inequality Results

The results from estimating equation (4) with the three measures of wage dispersion are
presented in Table 1. Panel A contains the coefficients from the regression using the coefficient
of variation as the dependent variable, Panel B contains the findings using the Gini and Panel C
presents the results for the Theil mean log deviation measure.

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