The hike in minimum wage increased informal economy for men working in low wage sectors

Seyfettin Gürsel, Ozan Bakış and Yazgı Genç

The possible effects of minimum wage increase on informality are examined in this third and last research brief with econometric analysis. It is known that an increase in minimum wage will elevate especially low wages (minimum wage and below). Thus, a hike in minimum wage is expected to raise informality in low wage segments. Taking this expectation into account, we analyzed the changes in informality in sectors differentiated by the share of low wage workers, comparing pre- and post-minimum wage increase periods. Utilizing both descriptive graphics comparing how change in informality correlated with the share of low wage workers in a sector, and evidence based on econometric analysis, we concluded that the hike in minimum wage increased informality for men employed in low wage sectors. However, the increase in informality had occurred clearly during the first two quarters of 2016, then this effect attenuated.