Earnings Inequality and the Minimum Wage: Evidence from Brazil
Federal Reserve Bank of Minneapolis - Opportunity and Inclusive Growth Institute Working Paper 7
124 Pages Posted: 29 May 2018 Last revised: 14 May 2021
Date Written: May 11, 2021
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: Suggested Citation