Earnings Inequality and the Minimum Wage: Evidence from Brazil

Federal Reserve Bank of Minneapolis - Opportunity and Inclusive Growth Institute Working Paper 7

Columbia Business School Research Paper No. 18-50

66 Pages Posted: 29 May 2018 Last revised: 11 Oct 2018

See all articles by Niklas Engbom

Niklas Engbom

Federal Reserve Bank of Minneapolis

Christian Moser

Columbia University

Multiple version iconThere are 2 versions of this paper

Date Written: October 10, 2018

Abstract

We show that a minimum wage can have large effects throughout the earnings distribution, using a combination of theory and empirical evidence. To this end, we develop an equilibrium search model featuring empirically relevant worker and firm heterogeneity. We use the estimated model to evaluate a 119 percent increase in the real minimum wage in Brazil from 1996 to 2012. Direct and indirect effects of the policy account for a substantial decline in earnings inequality, with modest negative employment consequences. Using administrative linked employer-employee data and two household surveys, we find reduced-form evidence supporting the model predictions.

Keywords: Worker and Firm Heterogeneity, Equilibrium Search Model, Monopsony, Spillover Effects

JEL Classification: E24, E25, E61, E64, J31, J38

Suggested Citation

Engbom, Niklas and Moser, Christian, Earnings Inequality and the Minimum Wage: Evidence from Brazil (October 10, 2018). Federal Reserve Bank of Minneapolis - Opportunity and Inclusive Growth Institute Working Paper 7; Columbia Business School Research Paper No. 18-50. Available at SSRN: https://ssrn.com/abstract=3181965 or http://dx.doi.org/10.2139/ssrn.3181965

Niklas Engbom

Federal Reserve Bank of Minneapolis ( email )

120 Hennepin ave
Minneapolis, MN 55401
United States

Christian Moser (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States
6093564653 (Phone)

HOME PAGE: http://www.economoser.com

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