occupations occurred solely in order to harmonize wages within an occupation category across
industries. The Ministry identified broadly-defined occupation categories to be harmonized
across industries and proceeded, gradually over a period of several years, to increase the
lower(est) minimum wage by a greater amount than the higher(est) minimum wage within each
broadly-defined occupational category. Over a period of several years, one minimum wage
emerged for each broadly-defined occupation, irrespective of industry. Effectively, this
increased the amount of exogenous year-to-year variation in minimum wages because the
minimum wages for different occupation categories in each year were increased by different
amounts.
Another source of exogenous variation in minimum wages was that, at the same time the
industrial dimension of the minimum wage was being eliminated, the number of minimum wages
for workers with higher education became more numerous. In 1988, a minimum wage was set
for all workers with a five-year university degree (licenciado), irrespective of occupation. In
1993 a new minimum wage was set for individuals with two to three years of university
education (diplomados) and for graduates of five-year technical highs schools (técnicos). In
1997, another new minimum wage was added for workers with a four-year university degree.
By 1997 there were 19 minimum wages, one each for unskilled workers, semi-skilled workers,
skilled workers, specialized workers (supervisors) and domestic servants, and several for
professionals (without any industrial dimension). 11
Appendix Table A.1 summarizes the changes in the level of minimum wages from 1987
to 1999 and it is clear that there is a range of rate changes every six months. Whereas, an
underlying criteria for setting wages was the rate of inflation (measured by the consumer price
index) in the preceding six months, the minimum wage for each occupation/skill category were
increased at different rates around this average and these rates did not depend on demand
conditions for that specific occupation.12 Therefore, we argue that after controlling for the
average change in the minimum wage by year (which we do in the regressions with a set of year-
specific dummy variables), any remaining variation in legal minimum wages is exogenous to
demand and supply conditions in the labor market, and therefore exogenous to actual wage
11 Our description of the process of simplification of minimum wages in Costa Rica summarizes interviews with
José Pablo Carvajal (Director, National Salaries Council,) July 14, 2003, Yabera Alvarado (Planning Directorate,
Ministry of Labor,) July 15, 2003 and Pablo Sauma, July 9, 2003. Ms. Alvarado is writing a detailed history of the
minimum wage simplification project, which she hopes to publish in 2004.
12 Interviews with José Pablo Carvajal (Director, National Salaries Council,) July 14 2003, Orlando Garcia
(Planning Directorate, Ministry of Labor,) July 15 2003 and Pablo Sauma, July 9 2003. Mr. Carvajal, who was part
10