Determining the Effect of the Minimum Wage on Income Inequality

Many recent studies have shown a significant increase to income inequality since the 1980s. One of the proposed methods for fixing this trend is to increase the minimum wage, since this policy would help those at the low end of the income spectrum to see economic growth. To analyze the effectiveness of this policy, we studied data from countries that are part of the Organization for Economic Development and Cooperation. By forming an econometric model to account for many factors that affect income inequality in nations around the world, including the real value of the minimum wage, we can determine the relationship and provide recommendations for future policy. We conclude that increases to the minimum wage can cause a decrease to income inequality until the minimum wage exceeds a maximum effectiveness value, at which point the effect starts to reverse itself. [excerpt]