As part of the ACES International Graduate Grants research program, Andrés Ham, a PhD student in Agricultural and Consumer Economics advised by Dr. Kathy Baylis, traveled to Honduras to study the consequences of minimum wage policy in a developing country.
“Minimum wages in developing countries tend to be sizable, are less likely to be rigorously enforced, and labor markets are often segmented into formal and informal sectors with minimum wage policy only covering formal workers. Given that most developing countries implement minimum wage policies, understanding their consequences on labor markets is critical for economic growth, developing effective labor policy, and poverty alleviation,” says Ham.
While in Honduras, Ham consulted with the National Statistics Institute, the Director of Wages in the Ministry of Labor, as well as sources outside the government including employers’ and workers’ organizations, and various other stakeholders.
“Together these viewpoints provided a comprehensive understanding of minimum wages in Honduras from the perspective of government, employers, and workers. This insight allowed me to qualify my results and better explain my findings,” says Ham.
Considering formal and informal sector jobs, Ham’s findings suggest that the costs of increasing minimum wages outweigh the benefits in this developing country. “The policy implication is that setting high minimum wages has detrimental effects on labor markets, well-being, and compliance,” says Ham.
His research was featured in the World Bank’s Development Impact blog (link here: http://blogs.worldbank.org/impactevaluations/should-developing-countries-increase-their-minimum-wages-guest-post-andr-s-ham, was shared on social media by the World Economic Forum, and was reported by a local newspaper in Honduras.
The impact of Ham’s work continues:
“The exposure received by the study prompted the government, employers, and unions to verbally commit towards increased cooperation to help solve some problems with minimum wage policy in Honduras. Currently, I am assisting the Ministry of Labor to help design a formula to measure changes in worker productivity, a key input to decide minimum wage changes. This addresses one of several jointly identified priorities: a systematic way to decide annual increases in minimum wages, improving enforcement, and creating safeguards to mitigate the negative effects from minimum wage hikes,” says Ham.
Ham is one of twelve ACES graduate students who received funding as part of the third round of the Graduate Student International Research Grants Program.
The Office of International Programs is currently accepting proposals for the 2017 program; proposals are due March 6. Click here for more information.