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

124 Pages Posted: 29 May 2018 Last revised: 14 May 2021

See all articles by Niklas Engbom

Niklas Engbom

New York University (NYU); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Christian Moser

Columbia University; Federal Reserve Bank of Minneapolis; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: May 11, 2021

Abstract

We show that a rise in the minimum wage accounts for a large decline in earnings inequality in Brazil since 1994. To this end, we combine rich administrative and survey data with an equilibrium model of the Brazilian labor market. Our results imply that the minimum wage has far-reaching spillover effects on wages higher up in the distribution, accounting for one-third of the 25.9 log point fall in the variance of log earnings in Brazil since 1994. At the same time, the minimum wage’s effects on employment and output are muted by reallocation of workers toward more productive firms.

Keywords: Inequality, Wage Distribution, Minimum Wage, Worker and Firm Heterogeneity, Equilibrium Search Model, Monopsony, Spillover Effects, Reallocation, Employment, Brazil, Linked Employer-Employee Data

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

Suggested Citation

Engbom, Niklas and Moser, Christian, Earnings Inequality and the Minimum Wage: Evidence from Brazil (May 11, 2021). 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

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