Earnings Inequality and the Minimum Wage: Evidence from Brazil

Produced by: 
Available from: 
February 2017
Paper author(s): 
Niklas Engbom
Christian Moser
Poverty - Inequality - Aid Effectiveness

We assess the extent to which a rise in the minimum wage can account for three facts characterizing a large decline in earnings inequality in Brazil from 1996–2012: (i) the decline is bottomdriven yet wide-spread; (ii) lower-tail inequality is negatively correlated with the bindingness of the minimum wage across Brazilian states over time; and (iii) a large share of the decline is due to a compression in the returns to firm and worker characteristics in pay. To this end, we build a general equilibrium search model with heterogeneous firms engaging in monopsonistic competition for heterogeneous workers. The rise in the minimum wage in our model explains 70 percent of the observed decline in the variance of log earnings, while being consistent with the above three facts.


Research section: 
Latest Research
Share this