Minimum wage, minimum effort: the effect of the minimum wage policy on labor productivity in the Zona Libre de la Frontera Norte

Abstract

This research investigates the impact of minimum wage increases on labor productivity within the Zona Libre de la Frontera Norte (ZLFN) in Mexico, utilizing a Differences-in-Differences design to exploit the exogenous variation introduced by the doubling of the minimum wage. The study focuses specifically on the manufacturing sector and finds that the wage increase resulted in a short-term boost in labor productivity, especially among blue-collar workers. The research examines various causal mechanisms, including potential organizational changes, shifts between the formal and informal sectors, and resource reallocation across economic sectors. The results show no evidence of organizational changes or efficiency wage effects. However, there was a slight reduction in the probability of informal work, indicating a possible transition of productive firms to the formal sector. This shift is likely attributable to tax reductions and fiscal incentives associated with the minimum wage increase, rather than the wage increase itself.