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  3. American Economic Review
  4. December 2022
  5. Earnings Inequality and the Minimum Wage: Evidence from Brazil

Earnings Inequality and the Minimum Wage: Evidence from Brazil

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Abstract

Increases in the minimum wage can substantially reduce earnings inequality. To demonstrate this, we combine administrative and survey data with an equilibrium model of the Brazilian labor market. We find that a 128 percent increase in the real minimum wage in Brazil between 1996 and 2018 had far-reaching spillover effects on wages higher up in the distribution. The increased minimum wage accounts 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.

Citation

Engbom, Niklas, and Christian Moser. 2022. "Earnings Inequality and the Minimum Wage: Evidence from Brazil." American Economic Review, 112 (12): 3803-47. DOI: 10.1257/aer.20181506

Additional Materials

JEL Classification

  • D31 Personal Income, Wealth, and Their Distributions
  • E23 Macroeconomics: Production
  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • J31 Wage Level and Structure; Wage Differentials
  • J38 Wages, Compensation, and Labor Costs: Public Policy
  • O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration