The Contribution of the Minimum Wage to U.S. Wage Inequality Over Three Decades: A Reassessment

61 Pages Posted: 22 Nov 2010 Last revised: 7 Mar 2011

See all articles by David H. Autor

David H. Autor

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Christopher L. Smith

Government of the United States of America - Division of Research and Statistics

Alan Manning

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2010

Abstract

We reassess the effect of state and federal minimum wages on U.S. earnings inequality using two additional decades of data and far greater variation in minimum wages than was available to earlier studies. We argue that prior literature suffers from two sources of bias and propose an IV strategy to address both. We find that the minimum wage reduces inequality in the lower tail of the wage distribution (the 50/10 wage ratio), but the impacts are typically less than half as large as those reported elsewhere and are almost negligible for males. Nevertheless, the estimated effects extend to wage percentiles where the minimum is nominally non-binding, implying spillovers. However, we show that spillovers and measurement error (absent spillovers) have similar implications for the effect of the minimum on the shape of the lower tail of the measured wage distribution. With available precision, we cannot reject the hypothesis that estimated spillovers to non-binding percentiles are due to reporting artifacts. Accepting this null, the implied effect of the minimum wage on the actual wage distribution is smaller than the effect of the minimum wage on the measured wage distribution.

Suggested Citation

Autor, David H. and Smith, Christopher L. and Manning, Alan, The Contribution of the Minimum Wage to U.S. Wage Inequality Over Three Decades: A Reassessment (November 2010). NBER Working Paper No. w16533. Available at SSRN: https://ssrn.com/abstract=1711673

David H. Autor (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Christopher L. Smith

Government of the United States of America - Division of Research and Statistics ( email )

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Alan Manning

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

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