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The minimum wage and the wage distribution in Portugal

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  • Oliveira, Carlos

Abstract

Raising the minimum wage can reshape the wage distribution. Using a semiparametric approach, counterfactual decomposition methods, and an extremely rich administrative dataset of all employees in Portugal, this paper presents significant visual and quantitative evidence of how changes in the minimum wage shaped the country’s wage distribution over the last thirty years. For most of this period, the importance of the minimum wage was decreasing. However, a sustained rise since 2006 coincided with a decline in wage inequality that was comparable to the United States’ total increase in inequality over the last five decades. This remarkable compression of the wage distribution can be fully accounted for by the rising minimum wage. While a minority of workers were directly covered by the minimum wage, spillover effects were observed up to the 54th percentile of the wage distribution, explaining more than half of its inequality-reducing effect. Portugal experienced modest wage growth between 2006 and 2019 but 38% of it can be associated to the increasing minimum wage.

Suggested Citation

  • Oliveira, Carlos, 2023. "The minimum wage and the wage distribution in Portugal," Labour Economics, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:labeco:v:85:y:2023:i:c:s0927537123001343
    DOI: 10.1016/j.labeco.2023.102459
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    More about this item

    Keywords

    Minimum wage; Spillover effects; Wage inequality; Wage density;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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