Minimum Wages and Informality: Evidence from Egypt

• In Event: Wages, Technology, and Work Arrangements in Changing Labor Markets

Abstract

Minimum wage (MW) policies are widely used to raise earnings among low-wage workers, yet their effects remain uncertain in developing countries with large informal sectors. Where many workers lack formal protections, MW regulations may influence wages beyond those directly covered by the law. This paper examines Egypt’s first legally binding private-sector MW, implemented in January 2022, in a labor market where informality accounts for approximately 60% of employment. It addresses two questions: (1) Do real wages rise more in local labor markets with greater pre-policy MW exposure? (2) Does cumulative wage growth among the same workers vary across formal employment, informal employment within formal firms (intensive margin), and employment in informal firms (extensive margin)? Using quarterly Labor Force Survey data from 2018–2024, I estimate a continuous-treatment difference-in-differences model that exploits variation in the pre-policy MW bite across governorate-by-industry labor markets, measured separately for formal and informal employees. I complement this analysis with the 2018–2023 Labor Market Panel Survey, tracking the same workers and distinguishing and distinguishing between the intensive and extensive margins of informality. In the LFS, a 10-percentage-point higher pre-policy bite is associated with approximately 4.8% greater relative real-wage growth among informal workers after the reform, compared with a smaller, statistically insignificant formal sector estimate. Similarly, the ELMPS indicates positive cumulative wage-growth associations, strongest among workers initially employed in informal firms. These findings suggest potential wage transmission beyond formal employment and underscore the importance of understanding MW policies in highly informal labor markets.

Author

• Nadine Amin, American University
  Presenting Author