The Impacts of the Minimum Wage on the Individual Labor Income Distribution

Abstract

The objective of this discussion paper is to estimate the impact that changes in the value of the minimum wage will have upon the distribution of individual labor income. Two complementary approaches will be used. The first approach is to use non parametric estimators to estimate the individual income labor distribution. The estimator used is the kernel estimator with a bandwidth of 0.08 and the data come from the five PNADs since the Real Plan. The results are visual and qualitative but show a strong concentration of individuals at or around the minimum wage. More or less 10% of individuals with positive labor income are in this minimum wage spike. Although this is less than the 15% of individuals with positive labor income who earn less than one minimum wage, the kernel estimators show that the spike follows increases in the minimum wage. This shows that minimum wage increases should have a significant effect on labor income distribution. The next approach in the paper is quantify the elasticity of labor income with relation to minimum wage increases. The data come from the monthly PMEs since the Real Plan and the methodology is to use various comparison groups to net out.