How is the Minimum Wage Shaping the Wage Distribution: Bite, Spillovers, and Wage Inequality
Abstract: Over the last three decades, wage inequality and the importance of the minimum wage presented an interesting negative correlation in Portugal. Using a semiparametric approach, counterfactual decomposition methods, and an extremely rich matched employer-employee dataset of all employees in the country, this paper presents significant visual and quantitative evidence of how the minimum wage structurally reshaped the wage distribution. The remarkable rise in the real minimum wage of 2006-2019 fully explained the sharp decline in wage inequality, and 40% of average wage growth - for women, who benefited the most, that was 60%. Spillover effects reached up to 40% above the minimum, being at times more important than the bite itself. The minimum wage reduced within and between wage inequality in several fronts, cutting the gender wage gap by a quarter, potentially decreasing the returns to education, and raising wages of workers at less productive firms. While the minimum wage bite was felt in workers' base wages, spillovers predominantly manifested in total wages.
Highlights and Graphical Abstract
I use a semiparametric approach to build and decompose counterfactual distributions
The minimum wage structurally reshaped the wage distribution
It fully explained a sharp fall in wage inequality and 40% of average wage growth
The impact was especially great on women, cutting the gender wage gap by a quarter
Spillovers were at times greater than the bite, reaching high above the minimum
In the press (Sábado magazine):
How is the Minimum Wage Shaping the Wage Distribution: Minimum Wage, Spillovers, and Wage Inequality in PortugalWork Project for the Award of a Master’s degree in Economics from the Nova School of Business and Economics, under the supervision of Professor Pedro Portugal. Submitted: 17-12-2021. Defended: 13-01-2022. Grade: 20/20.
Abstract: Over the last three decades, wage inequality and the importance of the minimum wage presented a nearly symmetric behavior in Portugal. Applying a semiparametric approach, this paper presents significant visual and quantitative evidence of how the MW structurally reshaped the wage distribution. The remarkable hike in the real MW of 2006-2019 explained virtually all of the decline in wage inequality, and 40% of the average wage growth, mostly driven by spillovers, which cascaded way above the minimum. The MW was most important for women, but spillovers were greater for men. Exploring the total-base wage differential also uncovered important new insights.
Thesis defence slides:
Nova Economics Club | Research Project
An analysis of inequality and poverty in PortugalNEC Research Project, with Diogo Roberto, Joana Leitão, Francisco Vale, Henrique Santos. 2020. (ResearchGate)
Abstract: The purpose of this report is to make a description of the income inequality and poverty in Portugal nowadays and throughout the last decades and comparing it with other European countries, in order to reach conclusions about the effectiveness of the policies that have been used to tackle these problems. Information from important working papers on the subject is used, as well as databases such as Pordata and the World Inequality Database. Historically, income inequality does not display the same path as other Western countries, staying high for most of the 20th century, falling after the establishment of democracy in 1974 and increasing from the 1980s, with globalisation. In Portugal, the elderly and the young are the most exposed to poverty, as well as single parent families and families with three or more children. In addition, Madeira and Azores are the regions that present the highest values of income inequality and poverty. Portugal is amongst the most unequal and poorest European countries. Concerning government intervention, direct taxes have been the policy with the highest efficacy in reducing income inequality, while social transfers are the most efficient.
In the press (Jornal Económico):