Minimum Wage E¤ects on Labor Earnings Inequality: Some Evidence from Brazil

Preliminary Paper, Comments Welcome We investigated the relationship between changes in federal minimum wage and earnings inequality in Brazil during the past 15 years. Given the nature of Brazilian labor markets, with a high proportion of low-educated workers, minimum wages tend to be stringent. To increase its importance, it has contributed the fact that minimum wage has become a counting unit during the high ination period, which made multiples of minimum wage to have mass in the earnings distribution even in the informal sector, where minimum wage ordinances are not enforced. We analyze the period 1992-2004 and by means of a new decomposition method developed to measure the role of minimum wages on earnings inequality we found that earnings inequality increases (decreases) have been strongly explained by real minimum wages decreases (increases). However, as the inationary memory seems to be fading out in the labor markets, the role of minimum wage as counting unit has become less important and, therefore, the overall impact of minimum wage on the earnings distribution