Employment, poverty and redistribution in Ecuador; A minimum wage story?

This paper examines the effects of minimum wage over labour income, poverty and underemployment in Ecuador during the period 2007 to 2016. For such objective, this research relies on pooled cross section data obtained from the December editions of the National Survey of Employment, Underemployment and Unemployment of Ecuador between the years 2007 and 2016. The paper uses different approaches for each one of the intended outcomes: in terms of labour income, we will use kernel density plots and Lorenz dominance tests, and assess whether there are improvements in the distribution of income after the implementation of minimum wage policy; for the measurement over poverty and underemployment, we will use a probit model; and to analyze the effect of minimum wages over labour income distribution we will use OLS and quantile regressions. The main findings of this paper are that there is a compression of labour income and informal employment distribution due to an increase of the minimum wage, which is observed in the poorest percentiles of the population, hence there is a relevant link to poverty-alleviation in Ecuador. Consequently we find evidence of poverty reduction due to an increase of minimum wage. The novelty about this paper is the finding that an increase in minimum wage decreases the probabilities of being underemployed within the informal sector.