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

Listed author(s):
  • Diego F. Angel-Urdinola
  • Quentin Wodon

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..

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Article provided by CEIS in its journal LABOUR.

Volume (Year): 18 (2004)
Issue (Month): 2 (06)
Pages: 317-327

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Handle: RePEc:bla:labour:v:18:y:2004:i:2:p:317-327
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  1. Jairo NUÑEZ MENDEZ & Roberto STEINER & Ximena CADENA & Renata PARDO, 2002. "¿Cuáles colegios ofrecen mejor educación en Colombia?," ARCHIVOS DE ECONOMÍA 003795, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  2. Javier A. Birchenall, 2007. "Income distribution and macroeconomics in Colombia," Journal of Income Distribution, Journal of Income Distribution, vol. 16(2), pages 6-24, June.
  3. Fernando MESA PARRA, 2001. "Strategic Trade Policy and Exchange Rate Uncertainty," ARCHIVOS DE ECONOMÍA 003527, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  4. Castro Carlos Alberto, 2001. "Eficiencia-X en el sector bancario colombiano," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, September.
  5. Juan Carlos ECHEVERRY GARZON, 2002. "El siglo del modelo de desarrollo," ARCHIVOS DE ECONOMÍA 002552, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  6. Andrés ESCOBAR ARANGO & Gustavo Adolfo HERNANDEZ & Gabriel PIRAQUIVE & Juan Mauricio RAMIREZ, 2003. "Elementos para el análisis de incidencia tributaria," ARCHIVOS DE ECONOMÍA 002571, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  7. Ortega, Juan Ricardo & Piraquive, Gabriel Armando & Hernandez, Gustavo Adolfo & Soto, Carolina & Prada, Sergio & Ramirez, Juan Mauricio, 2000. "Incidencia fiscal de los incentivos tributarios
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    ," MPRA Paper 14016, University Library of Munich, Germany.
  8. Francisco Javier LASSO VALDERRAMA, 2002. "Economías de escala en los hogares y pobreza," ARCHIVOS DE ECONOMÍA 002399, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
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