The Distributional Effects of Minimum Wages in Brazil: 1996-2001

Abstract

The Brazilian economy has relied on the minimum wage since it was first implemented in 1940. Brazil's newly elected President recently raised the minimum wage by 20 percent and promised to double the value of the minimum wage before his term ends in 2006. The usual rationale for minimum wage increases is to bring about beneficial changes in the income distribution by raising the incomes of poor and low-income families. The goal of this paper is to evaluate the efficacy of the minimum wage in bringing about these changes in Brazil. We examine data drawn from Brazil's major metropolitan areas and study the years following the conclusion of its hyperinflation. The estimates provide no evidence that, in the lower-wage metropolitan areas where their effects should be apparent, minimum wages in Brazil lift family incomes at the lower points of the income distribution.

Keywords: Minimum wage, wages, employment, poverty

JEL Classification: I38, J23, O17