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Earnings Inequality and the Minimum Wage: Evidence from Brazil

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  • Moser, Christian
  • Engbom, Niklas

Abstract

We show that a 128 percent real increase in the minimum wage accounts for a large decline in earnings inequality in Brazil between 1996 and 2018. To this end, we combine administrative and survey data with an equilibrium model of the Brazilian labor market. Our results imply that the minimum wage has far-reaching spillover effects on wages higher up in the distribution, accounting for 45 percent of a large fall in earnings inequality over this period. At the same time, the effects of the minimum wage on employment and output are muted by reallocation of workers toward more productive firms.

Suggested Citation

  • Moser, Christian & Engbom, Niklas, 2021. "Earnings Inequality and the Minimum Wage: Evidence from Brazil," CEPR Discussion Papers 16143, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16143
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    Keywords

    Inequality; Wage distribution; Minimum wage; Worker and firm heterogeneity; Equilibrium search model; Monopsony; Spillover effects; Reallocation; Employment; Brazil;
    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
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • 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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