Open AccessThe Role of the Minimum Wage on the Declining Wage Inequality in Latin America: Evidence from Brazil.
Author(s) -
Paul Garcia Hinojosa
Publication year - 2019
Publication title -
review of economic analysis
Language(s) - English
Resource type - Journals
ISSN - 1973-3909
DOI - 10.15353/rea.v11i1.1517
Subject(s) - minimum wage , economics , counterfactual thinking , wage , inequality , distribution (mathematics) , labour economics , income distribution , wage inequality , wage share , economic inequality , latin americans , efficiency wage , demographic economics , philosophy , linguistics , mathematics , epistemology , mathematical analysis
Over the past two decades, the downward trend of income inequality in Brazil has been accompanied by a sharp increase in the real value of the minimum wage. There is no empirical consensus on whether the minimum wage has an equalizing effect on income distribution because of its ambiguous effects on employment. I document the effectiveness of the minimum wage on compressing wage inequality throughout the wage distribution and its effects on employment by using Brazilian regional data over the post-inflationary period (1995-2015). A counterfactual exercise shows that half of the decline in lower-tail inequality is attributable to the increase in the real minimum wage whereas the effects of the minimum wage on upper-tail inequality are negligible. Furthermore, the increase in the minimum wage has small contemporaneous adverse effects on formal employment which appear to vanish after three quarters.JEL classification: E24Keywords: wage inequality, employment, minimum wage.