The Minimum Wage and the Wage Distribution in Portugal
Abstract: Raising the minimum wage can reshape the wage distribution. In Portugal, a sustained rise in the minimum wage over 13 years coincided with a decline in inequality that was equivalent to the US increase in inequality of the 1980s and 90s. Using a semiparametric approach, counterfactual decomposition methods, and an extremely rich administrative dataset of all employees in the country, this paper presents significant visual and quantitative evidence of how changes in the minimum wage shaped the wage distribution over the last three decades. The remarkable minimum wage rise of 2006-19 triggered a compression of the lower half of the wage distribution that was equivalent to the full decline in wage inequality. The rise explained 40% of average wage growth. Spillover effects generated wage gains up to the 54th percentile, explaining more than half of this inequality-reducing effect. Like in many European countries, most workers benefit from collectively bargained wage floors above the national minimum. Wage floors did not react to the rising minimum wage but firms proactively raised wages higher up in the distribution in order to maintain job title premiums, suggesting that spillovers were not contingent on a heavily institutionalised labour market.
A Modern Excess Profit Tax
Abstract: This paper presents a new way to tax excess profits. We propose to tax the rise in the stock market capitalization of companies that benefit from extraordinary circumstances, such as energy firms following the invasion of Ukraine in February 2022. Targeting the rise in stock market capitalization (which is easily observable) makes the tax much harder to avoid than standard excess profit taxes, and allows to capture rents irrespective of where multinational companies book their profits. We apply this proposal to energy companies that are headquartered or have sales in the European Union. We estimate that taxing the January 2022 to September 2022 valuation gains of energy firms at a rate of 33% would generate around €80 billion in revenue (0.4% of GDP) for the European Union. We discuss implementation practicalities and compare our proposals to other plans made to tax excess profits.