being simplified and compressed, the addition of new minimum wage categories for workers
with higher education resulted in several new spikes in the distribution of minimum wages at
higher wage levels, including three noticeable spikes in the right-hand tail of the distribution at
the minimum wages for workers with 2-4 years of university education (associates degrees), 4-
year university graduates and licenciados.
Table 2 presents some descriptive statistics on the average wages and distribution of
workers in the six formal/informal sectors we define above. Over 50% of workers in Costa Rica
live in rural areas, although the proportion of workers in rural areas declines over time. This
decline is especially pronounced for the rural large enterprise sector, which falls from almost
28% of employees in 1988 to 24% in 1999. At the same time, all urban sectors are growing, but
especially the urban formal sector, which increases from 23% to over 26% of workers from 1988
to 1999. On average, 74% of workers are legally covered by minimum wage legislation, while
26% are uncovered self-employed workers. Average wages are highest for workers in the urban
formal sector, followed closely by those of self-employed workers in urban areas. Average
wages are lowest for employees of small enterprises in urban and rural areas and for employees
in the rural formal (large enterprise) sector. These statistics suggest that, if legal minimum
wages disproportionately affect the wages of low-wage workers, we would expect to find a
bigger impact of minimum wages on the wages of workers in small enterprises and rural areas
than in the urban formal sector.
V. Findings
Spikes in the distribution of wages
Figure 2 overlays the distribution of wages on the distribution of minimum wages for
three years: 1988, 1993 and 1999 (similar graphs for all other years are presented in the
appendix). Several important points are immediately clear from observing these graphs. First,
legal minimum wages in Costa Rica are applicable to workers across the wage distribution; they
are set for workers in each decile from the 3rd to the 10th. However, in most years the majority of
the minimum wages fall near the middle, in the 4th to 6th deciles of the distribution of wages.15
Second, there are a significant number of workers who earn below the minimum wage.
15Graphs of the distribution of the log of wages and the log of minimum wages for the covered and uncovered
sectors for the other years for which we have data are presented in appendix Figure A1. In some years the spikes in
the distribution of minimum wages and actual wages are not as closely correlated as they are in 1988 and 1997,
although in other years the correlations are even closer.
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