Earnings Inequality and the Minimum Wage: Evidence from Brazil
Federal Reserve Bank of Minneapolis - Opportunity and Inclusive Growth Institute Working Paper 7
66 Pages Posted: 29 May 2018 Last revised: 11 Oct 2018
Date Written: October 10, 2018
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: Suggested Citation