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The Contribution of Minimum Wages to Increasing Wage Inequality

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  • Coen N. Teulings

    (SEO, University of Amsterdam)

Abstract

There has been much attention for the causes of the increase in wageinequality in the United States since the mid seventies. DiNardo,Fortin, and Lemieux (1996) showed that minimum wages can explain 25%. The present paper uses a more general approach requiring noassumptions on how minimum wages affect wage distribution and returnon human capital. Applying this methodology to the United States forthe period 1973-1991 shows that the rise in wage inequality duringthe eighties can be largely explained by the decrease of minimumwages in that period. The compressing effect of increasing minimumwages is felt at wage levels up to at least twice the minimum.

Suggested Citation

  • Coen N. Teulings, 1998. "The Contribution of Minimum Wages to Increasing Wage Inequality," Tinbergen Institute Discussion Papers 98-093/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:19980093
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    Cited by:

    1. Coen N. Teulings, 1999. "Substitution and Complementarity under Comparative Advantage and the Accumulation of Human Capital," Tinbergen Institute Discussion Papers 99-049/3, Tinbergen Institute.
    2. Teulings, Coen N, 2000. "Aggregation Bias in Elasticities of Substitution and the Minimum Wage Paradox," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 359-398, May.
    3. Mr. Michael Sarel, 1997. "How Macroeconomic Factors Affect Income Distribution: The Cross-Country Evidence," IMF Working Papers 1997/152, International Monetary Fund.
    4. Frances Stewart, 2003. "Income distribution and development," Chapters, in: John Toye (ed.), Trade and Development, chapter 10, Edward Elgar Publishing.
    5. Claudio Lucifora, 1999. "Wage Inequalities and Low Pay: The Role of Labour Market Institutions," Working Papers 1999.13, Fondazione Eni Enrico Mattei.
    6. Cardoso, Ana & Portugal, Pedro, 2001. "Disentangling the Minimum Wage Puzzle: An Analysis of Job Accessions and Separations from a Longitudinal Matched Employer-Emplo," CEPR Discussion Papers 2844, C.E.P.R. Discussion Papers.

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