Monday, March 30, 2015

Minimum wage and inequality

Carlos Medeiros reminded me the other day that the minimum wage had played an important part in the reduction of inequality in developed economies, something often not discussed in detail or given proper emphasis in mainstream stories, that in the US tend to emphasize the role of education (for example, in Claudia Goldin and Lawrence Katz's work). By the way, Medeiros comment was prompted by the fact that Piketty in his Capital in the Twenty-First Century does note the role of the minimum wage in the reduction of inequality during the Golden Age.

The graph below shows the real minimum wage since its creation until 2013, and the income of the top 1%, from the Piketty and Saez data.
This exhibits a similar pattern as the one shown by the relation of inequality and the top marginal tax rate. The fall and then stagnation of real minimum wage over the last thirty years is certainly part of the story of increasing inequality, and to reverse it would require strengthening the labor force, and a higher minimum wage.

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