Abstract
Starting from the consideration that excessive income inequalities could hamper sustainable growth, our paper aims to evaluate the impact of the minimum wage policy upon wage and income distributions. Using the European Union Survey on Income and Living Conditions (EU-SILC) database with national representative sample of households, an income distribution analysis was conducted for the case of Romania based on two microsimulation approaches. The first one assumed building a counterfactual income distribution under the hypothesis of no change in minimum wage, while the second one implied a decomposition of the Gini coefficient of income inequalities based on main income determinants, including the minimum wage level and the share of minimum wage earners in the total number of employees. Both approaches pointed to similar findings, indicating a positive effect of the minimum wage on wage inequalities reduction for both genders, although higher for women, as they are more present among lower paid employees. The minimum wage policy can reshape the wage distribution, by enlarging the share of minimum income earners and narrowing the middle. Moreover, the household disposable income becomes less unequal when minimum wage increases, meaning that the income gain spreads over the entire household as most minimum wage earners come from poor households with numerous children.
Highlights
Around economic inequality or its most common form, income inequality, major political, social, economic, and academic debates have arisen
Because our goal was to estimate the impact of the minimum wage adjustment upon income inequality, following Brito’s approach [62], the household income has been divided into two major components: labor income and other sources of income, while each of them, theoretically, can further on be divided into incomes related to the minimum wage and incomes that are not related to the level of the minimum wage
The data on which our analysis is based come from the EU-SILC survey, the sample of households being national representative and providing information on income from detailed sources, making it most suitable for income distribution analysis
Summary
Around economic inequality or its most common form, income inequality, major political, social, economic, and academic debates have arisen. Inequalities expressed as gaps in incomes, opportunities, and life chances have extended between, but mostly within countries, as a consequence of historical developments, as well as social, cultural, and political contexts. An excessively unequal income distribution could hamper sustainable growth, while economic growth by itself is not a guarantee for inequality reduction (see [1,2]) even if it contributes to enhancing human development through improvements in the standard of living. Sustainable growth refers to the economic development that can be maintained by a country without causing significant economic, social, and environmental problems for future generations. Less inequality is important for human development per se
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