On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute
Working Papers
Earnings Inequality and the Minimum Wage: Evidence from Brazil
Niklas Engbom
Christian Moser
Abstract

We show that an increase in the minimum wage can have large effects throughout the earnings distribution, using a combination of theory and evidence. To this end, we develop an equilibrium search model featuring empirically relevant worker and firm heterogeneity. The minimum wage induces firms to adjust their equilibrium wage and vacancy policies, leading to spillovers on higher wages. We use the estimated model to evaluate the effects of a 119 percent increase in the real minimum wage in Brazil from 1996 to 2012. The policy change explains a large decline in earnings inequality, with spillovers reaching up to the 80th percentile of the earnings distribution. At the same time, employment and output fall only modestly as workers relocate to more productive firms. Using administrative linked employer-employee data and two household surveys, we find reduced-form evidence in support of the model predictions.


Download Full text
Cite this item
Niklas Engbom & Christian Moser, Earnings Inequality and the Minimum Wage: Evidence from Brazil, Federal Reserve Bank of Minneapolis, Opportunity and Inclusive Growth Institute, Working Papers 7, 12 Mar 2018.
More from this series
JEL Classification:
Subject headings:
Keywords: Worker and firm heterogeneity; Equilibrium search model; Minimum wage; Spillovers
DOI: 10.21034/iwp.7
For corrections, contact Jannelle Ruswick ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal