Seminários GEE

Minimum wage permanent increases compress the cross-sectional wage distribution, but how do they affect lifetime inequality? Using rich administrative employer-employee data from Portugal, I exploit a large and permanent 16.5% increase in the real national minimum wage between 2007 and 2010 to estimate individual-level effects for workers across the 2006 wage distribution, tracking outcomes up to eight years after the start of the reform. During the reform period, I find wage gains of approximately 10 percentage points for minimum wage workers, with spillovers extending to the median, and no adverse effects on hours or employment. However, these gains prove transitory: within four years of the minimum wage stabilizing, 70-80% of the initial effects dissipate as workers converge back toward their counterfactual lifecycle wage trajectories. Two mechanisms drive this convergence: substantial labor income mobility causes most low-wage workers to naturally progress beyond the minimum wage over time, and the reform generates minimal impact on determinants of future wages – no effects on employment, hours, or occupational and industry mobility, and only modest firm reallocation. As a result, the policy meaningfully reduces cross-sectional inequality but has substantially more muted effects on lifetime inequality.

Apresentação 114.º Seminário DGE/GPEARI - The impact of the Minimum Wage on Inequality: Cross-Sectional vs Lifetime.pdf