DP8682 | Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa

Publication Date

01/12/2011

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Abstract

What happens when a previously uncovered labour market is regulated? We exploit the introduction of a minimum wage in South Africa and variation in the intensity of this law to identify increases in wages for domestic workers and find no statistically significant effects on the intensive or extensive margins of work. These large, partial responses to the law are somewhat surprising, given the lack of monitoring and enforcement in this informal sector. We interpret these changes as evidence that strong external sanctions are not necessary for new labour legislation to have a significant impact on informal sectors of developing countries, at least in the short-run.