Conclusiones entrevista

The legislation change on 27 November 2012, which is used to identify the effect on real

wages, raised the minimum wage for Zone B and left unaffected zones A and C. So, these

untreated zones, A and C, constitute the natural control group for the DiD regressions.

But, given that the intervention was not performed in a randomized way, a common

concern in this kind of observational studies is precisely the validity of the control group.

By construction, minimum wages zones in Mexico are different. Their classification

was not carried out by regional differences, but by the level of economic development

across municipalities. Under this circumstances, in which control and treatment were

not randomized and they are not identical in their observable characteristics, the key

identifying assumption is that, in absence of the intervention, control and treatment

groups follow the same trend in their outcome variables before the policy change. To

verify this assumption, we implement a graphical inspection of the trends on real wages

by each zone.

Figure 3.1 shows the outcome trend variable (real hourly wage) for the period 2011Q1-

2014Q4. Before the intervention — the dotted vertical line denotes the period in which

the legislation change took place — the trends followed by all three zones are and parallel.

That is, we can argue that the three minimum wage zones exhibit the same trend on real

wages as the distance between the mean wage in Zone B with respect zones A and C

remains basically constant. This implies that in absence of treatment, real wages in all

three zones respond in the same way to exogenous shocks, or in other words, there is no

evidence of differences on real earnings behaviour among wages zones. As a consequence,

2_{The model on the estimation of the probability of being active in the labour market variable, in} Chapter 4 (see Table 4.2) is not corrected for sample selection bias. It includes the variable Head of household directly as a regressor.

Figure 2.1

Real hourly wage trends by wage zone (Mexican pesos of 1F December 2010)

treatment and control groups are valid for implementing DiD regressions.

With respect to the post-treatment period, although all three zones exhibit decreasing

trends in real wages, it is possible to notice that the gap between Zone B and the other

two zones increases after 2012Q4. Visually, the difference between Zone B and Zone A

is more compelling. This, because Zone A suffered an important reduction in the real

earnings level.3 _{But, it is also possible to appreciate that the distance between zones}

B and C was constant before the intervention, and after that, the gap increases. This

means that Zone B’s relative wages increased after the policy change so that the minimum

wage effect should be positive. However, of course it is necessary to implement a formal

causality analysis to talk about treatment effects.

A legitimate concern may be that the trend for the level of prices can be different

among zones. As specified in Appendix 2.A, real wages are calculated deflating nominal

wages by using the National Consumers Price Index (INPC). So, a single price index is

used for the three zones. The reason is that there are no price indices at the municipality

3_{Literature on Mexican labour market has no explored the causes of this decrease in wages in Zone} A. Figure 2.2 shows that the decline is also observed in nominal wages. Appendix 2.C implements some descriptive analysis to explore some different explanations that could have lead to this reduction. But, it is important to highlight that in our econometric specifications we introduce a DiD parameter on Zone A — equation (2.1b) —to check this decline is consequence of the intervention. In all cases, the corresponding parameter is not statistically significant.

level. In fact, to construct the national price index, INEGI collects data only from 46

representative urban cities. As minimum wage zones are classified at the municipality

level, it is not possible to construct a precise price index by wage zones.

Therefore, to confirm that the pretreatment trends are actually the same, and this is

not a consequence of the use of a single price index for the three zones, we implement

the following analysis. First, Figure 2.2 shows trends by nominal wages by zones. The

trends are positive because the lack of consideration of the inflationary process, but the

conclusion remains: before the intervention there exists a parallel trend of the nominal

wages by zones, but after the policy change in 2012Q4, the gap increased.

Figure 2.2

Nominal wage trends by wage zone (Current Mexican pesos)

Figure 2.3

Real wage trends by wage zone, separate CPI (Mexican pesos of 1F December 2010)

Second, although there is no information on price indices at the municipality level, we

construct an approximation calculating a simple average of the available cities by zones

(see Appendix 2.B for a listing of the cities included in the INEGI’ INPC calculation by

minimum wage zone). Of course, there can be an important bias on these exercise because

there may be an underrepresentation of municipalities by zones. But, the purpose is only

to show that there are no fundamental differences generated by the dynamics of prices

in the wages zones. We use these new zones’ Consumer Price Indices (CPI) to deflate

shows that zones A, B, and C exhibit parallel trends before the intervention even if we

use their respective price index to deflate nominal earnings.

In summary, this subsection presents descriptive evidence to show that average real

wages in zones A and C follow parallel trends with respect to Zone B. This, independently

of the level of prices at the national and at the wage zone level. Therefore, zones A and

C constitute a valid control group to Zone C.