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The Contribution of the Minimum Wage to U.S. Wage Inequality over Three Decades: A Reassessment

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  • David H. Autor
  • Alan Manning
  • Christopher L. Smith

Abstract

We reassess the effect of state and federal minimum wages on U.S. earnings inequality using two additional decades of data and far greater variation in minimum wages than was available to earlier studies. We argue that prior literature suffers from two sources of bias and propose an IV strategy to address both. We find that the minimum wage reduces inequality in the lower tail of the wage distribution (the 50/10 wage ratio), but the impacts are typically less than half as large as those reported elsewhere and are almost negligible for males. Nevertheless, the estimated effects extend to wage percentiles where the minimum is nominally non-binding, implying spillovers. However, we show that spillovers and measurement error (absent spillovers) have similar implications for the effect of the minimum on the shape of the lower tail of the measured wage distribution. With available precision, we cannot reject the hypothesis that estimated spillovers to non-binding percentiles are due to reporting artifacts. Accepting this null, the implied effect of the minimum wage on the actual wage distribution is smaller than the effect of the minimum wage on the measured wage distribution.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16533.

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Date of creation: Nov 2010
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Handle: RePEc:nbr:nberwo:16533

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  1. Allegretto, Sylvia & Dube, Arindrajit & Reich, Michael, 2010. "Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data," Institute for Research on Labor and Employment, Working Paper Series, Institute of Industrial Relations, UC Berkeley qt7jq2q3j8, Institute of Industrial Relations, UC Berkeley.
  2. Dinardo, J. & Fortin, N.M. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9406, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. Victor Chernozhukov & Christian Hansen, 2005. "An IV Model of Quantile Treatment Effects," Econometrica, Econometric Society, Econometric Society, vol. 73(1), pages 245-261, 01.
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  1. The Contribution of the Minimum Wage to U.S. Wage Inequality over Three Decades: A Reassessment
    by maximorossi in NEP-LTV blog on 2011-06-16 13:04:27
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Cited by:
  1. Tim Butcher & Richard Dickens & Alan Manning, 2012. "Minimum Wages and Wage Inequality: Some Theory and an Application to the UK," CEP Discussion Papers, Centre for Economic Performance, LSE dp1177, Centre for Economic Performance, LSE.
  2. Autor, David & Dorn, David, 2012. "The Growth of Low Skill Service Jobs and the Polarization of the U.S. Labor Market," IZA Discussion Papers 7068, Institute for the Study of Labor (IZA).
  3. Aart Gerritsen & Bas Jacobs, 2014. "Is a Minimum Wage an Appropriate Instrument for Redistribution?," CESifo Working Paper Series 4588, CESifo Group Munich.
  4. Müller, Kai-Uwe & Steiner, Viktor, 2013. "Distributional effects of a minimum wage in a welfare state: The case of Germany," Discussion Papers, Free University Berlin, School of Business & Economics 2013/21, Free University Berlin, School of Business & Economics.
  5. Kai-Uwe Müller & Viktor Steiner, 2013. "Distributional Effects of a Minimum Wage in a Welfare State: The Case of Germany," SOEPpapers on Multidisciplinary Panel Data Research 617, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Mueller, Kai-Uwe & Steiner, Viktor, 2013. "Behavioral effects of a federal minimum wage and income inequality in Germany," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79784, Verein für Socialpolitik / German Economic Association.
  7. Theodore Koutmeridis, 2013. "The Market for "Rough Diamonds": Information, Finance and Wage Inequality," Discussion Paper Series, Department of Economics, Department of Economics, University of St. Andrews 201307, Department of Economics, University of St. Andrews, revised 14 Oct 2013.
  8. Theodore Koutmeridis, 2013. "The Market for "Rough Diamonds": Information, Finance and Wage Inequality," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 201307, Centre for Dynamic Macroeconomic Analysis, revised 14 Oct 2013.
  9. World Bank, 2013. "Minimum Wage Policy : Lessons with a Focus on the ASEAN Region," World Bank Other Operational Studies 16687, The World Bank.
  10. Isaac Sorkin, . "Are There Long-Run Effects of the Minimum Wage?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  11. Josh Bivens & Lawrence Mishel, 2013. "The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 27(3), pages 57-78, Summer.

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