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Earnings Inequality and the Minimum Wage: Evidence from Brazil

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  • Niklas Engbom
  • Christian Moser

Abstract

We quantify the effect of a minimum wage on compression throughout the earnings distribution. Using the case of Brazil, which experienced a large decrease in earnings inequality while its real minimum wage increased from 1996-2012, we document that the inequality decrease was bottom-driven yet widespread, with compression up to the 75th earnings percentile. We develop an equilibrium search model with heterogeneous firms and workers and find that effects of the minimum wage are consistent with the above facts, explaining 70 percent of the observed inequality decrease, with half of the decrease due to spillovers further up the earnings distribution.

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  • Niklas Engbom & Christian Moser, 2017. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," CESifo Working Paper Series 6393, CESifo.
  • Handle: RePEc:ces:ceswps:_6393
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    More about this item

    Keywords

    worker and firm heterogeneity; minimum wage; matched employer-employee data; equilibrium search model;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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