We show that a minimum wage can have large effects throughout the earnings distribution, using a combination of theory and empirical evidence. To this end, we develop an equilibrium search model featuring empirically relevant worker and firm heterogeneity. We use the estimated model to evaluate a 119 percent increase in the real minimum wage in Brazil from 1996 to 2012. Direct and indirect effects of the policy account for a substantial decline in earnings inequality, with modest negative employment consequences. Using administrative linked employer-employee data and two household surveys, we find reduced-form evidence supporting the model predictions.
Engbom, Niklas, and Christian Moser. "Earnings Inequality and the Minimum Wage: Evidence from Brazil." Columbia Business School, October 10, 2018.
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