Abstract

How do minimum wages affect informality? We study the near-doubling of the real minimum wage from 2000 to 2009 in Brazil, where 46% of the workforce is informal.Using labor force surveys covering the informal sector, we show the minimum wageexhibits near full pass through to informal employees working in formal firms, about halfof all informal employees. The formal-to-informal reallocation elasticity with respect tothe formal wage is small: -0.28. Our findings illustrate how minimum wages can positivelyaffect living standards for workers thought beyond the reach of labor law, a sizable shareof the workforce in developing economies.