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The Impact on Inequality of Raising the Minimum Wage: Gap-narrowing and Reranking Effects

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  • Diego F. Angel-Urdinola
  • Quentin Wodon

Abstract

Raising the minimum wage may reduce inequality by increasing the wages of low-skill workers, but it may also increase inequality due to negative impacts on employment that produce wage losses. Using previous estimates of the elasticities of wages and employment to changes in the minimum wage in Colombia and Brazil, we show that the net impact on inequality of increasing the minimum wage may depend on the distributional weights used for inequality measurement. The results are obtained by decomposing the Gini index into reranking and gap-narrowing effects. Inequality-increasing reranking effects, which are associated with job losses, may dominate inequality-decreasing gap-narrowing effects, which are associated with wage gains, when high weights are placed on workers with low earnings. For standard distributional weights, however, the likely net impact is a reduction in wage inequality. Copyright 2004 Blackwell Publishing Ltd..

Suggested Citation

  • Diego F. Angel-Urdinola & Quentin Wodon, 2004. "The Impact on Inequality of Raising the Minimum Wage: Gap-narrowing and Reranking Effects," LABOUR, CEIS, vol. 18(2), pages 317-327, June.
  • Handle: RePEc:bla:labour:v:18:y:2004:i:2:p:317-327
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    References listed on IDEAS

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    1. Jairo Núñez & Roberto Steiner & Ximena Cadena & Renata Pardo, 2002. "¿Cuáles Colegios Ofrecen Mejor Educación En Colombia?," DOCUMENTOS CEDE 003796, UNIVERSIDAD DE LOS ANDES-CEDE.
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    Cited by:

    1. Diego Angel-Urdinola, 2008. "Can a minimum wage increase have an adverse impact on inequality? Evidence from two Latin American economies," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 6(1), pages 57-71, March.
    2. Alexandros Karakitsios & Manos Matsaganis, 2018. "Minimum Wage Effects on Poverty and Inequality," DEOS Working Papers 1801, Athens University of Economics and Business.

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