Evidence of the likely negative effect of the introduction of the minimum wage on the least skilled and poor through “labor-labor” substitution

This study aims to test one hypothesis regarding the impact of the minimum wage on poverty: an increase or the introduction of the minimum wage raises the cost of hiring relatively unskilled workers, and makes inputs that are good substitutes for such workers more attractive.

Placebo analyses confirmed that a labor–labor substitution is induced by the introduction of the minimum wage.

This study found a labor–labor substitution within low-skill groups induced by the introduction of the minimum wage for domestic and farming work in South Africa.

The evidence implies that the minimum-wage policy may not be as effective for poverty reduction as some governments in emerging and developing countries claim.

No studies were found on labor–labor substitution in the context of emerging or developing countries. The clear contribution of this paper using South African data clearly lies here.