The impact of the minimum wage on low-wage earners

This paper estimates the impact of increases in the minimum wage on employment stability, wages and inequality in Portugal. We use data from 2002 to 2010; from 2002 to 2006 the real minimum wage was stable, but it increased quite substantially afterwards. Lower-tail wage inequality widen up to 2006 and declined strongly afterwards. The results point towards a negative employment elasticity for workers whose initial wage is between the old and the new minimum wages. This elasticity is similar to the one obtained in the US, a country with a low minimum wage when compared to the average wage, and smaller than the one obtained for France, a country with a high minimum wage. The wage elasticity to the minimum wage is naturally higher for workers earning exactly the old minimum wage. The wages of all other workers remain unaffected. These results point to a detrimental effect of minimum wage increases for employment stability of low-wage workers, with only minor gains in terms of wages.