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Purpose

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.

Design/methodology/approach

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

Findings

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.

Practical implications

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.

Originality/value

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.

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