Earnings Inequality and the Minimum Wage: Evidence from Brazil

Engbom, Niklas and Moser, Christian (2018): Earnings Inequality and the Minimum Wage: Evidence from Brazil.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Worker and Firm Heterogeneity; Equilibrium Search Model; Monopsony; Spillover Effects; Minimum Wage
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E20 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E25 - Aggregate Factor Income Distribution; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E26 - Informal Economy ; Underground Economy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E64 - Incomes Policy ; Price Policy; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J38 - Public Policy; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J42 - Monopsony ; Segmented Labor Markets; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J46 - Informal Labor Markets

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