Minimum wages and negotiated pay increases: effects on the wage distribution and employment in Belgium

Moderate minimum wages increases are known to be neutral to employment and beneficial for lower tail wage inequality. Spillover-effects are commonly found, but fade out in the upper tail of the wage distribution. This paper investigates the Belgian case, in which minimum wages are indexed and sector specific wage scales institutionalize wage inequality over the full distribution. We find that the national minimum wage has a reducing effect on lower tail wage inequality that is suppressed by sectoral minimum wages. Sectoral minimum wages, however, have a compressing effect on both sides of the wage distribution, in part through the reduction of turnover and exclusion of entrants. While observed wage inequality is stable in the period 1996-2006, controlling for minimum wages reveals a latent growth in upper tail wage inequality.status: publishe