Earnings Inequality and the Minimum Wage: Evidence from Brazil

118 Pages Posted: 14 May 2021 Last revised: 4 Feb 2022

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; Centre for Economic Policy Research (CEPR)

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Date Written: May 2021

Abstract

We show that a 128 percent real increase in the minimum wage accounts for a large decline in earnings inequality in Brazil between 1996 and 2018. To this end, we combine 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 45 percent of a large fall in earnings inequality over this period. At the same time, the effects of the minimum wage on employment and output are muted by reallocation of workers toward more productive firms.

Keywords: Brazil, employment, Equilibrium Search Model, Inequality, minimum wage, monopsony, reallocation, spillover effects, Wage distribution, Worker and Firm Heterogeneity

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 2021). CEPR Discussion Paper No. DP16143, Available at SSRN: https://ssrn.com/abstract=3846258

Niklas Engbom (Contact Author)

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Christian Moser

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