Graduate Student Forum

Effect of Minimum Wages on Formal and Informal Employment in Japan & Thailand

Tuesday, 17 November 2020 | 12:15 - 13:00 (JST)
Zoom Meeting
  • Saisawat Samutpradit Graduate School of Economics, The University of Tokyo
  • Daiji Kawaguchi Professor, Graduate School of Economics, The University of Tokyo

When there is a sector not covered by the minimum wage law, the two-sector model predicts that minimum wage increase pushes workers from formal to informal employment. Using Thai data from 2010 to 2015, during which the country experienced an irregular increase in minimum wages of about 60 percent, I found no impact on overall employment but an employment reduction in the sector covered by the minimum wage legislation and an increase in the size of the uncovered sector. Estimates on wage showed minimum wages increased wage in the covered sector but not in the uncovered sector. The results can be generalized to other countries. Although Japan had a much smaller uncovered sector of approximately 10 percent of total employment, an increase in minimum wages could displace workers from regular employment to self-employment or family business.