The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment

TLDR

The study reassesses how minimum wages affect US earnings inequality over three decades, employing an instrumental‑variable strategy to mitigate prior biases. Minimum wages lower lower‑tail wage inequality, but the effect is smaller than earlier studies and may be partly due to reporting artifacts, with spillovers suggested even where the wage floor is nonbinding. JEL codes: J22, J31, J38, K31.

Abstract

We reassess the effect of minimum wages on US earnings inequality using additional decades of data and an IV strategy that addresses potential biases in prior work. We find that the minimum wage reduces inequality in the lower tail of the wage distribution, though by substantially less than previous estimates, suggesting that rising lower tail inequality after 1980 primarily reflects underlying wage structure changes rather than an unmasking of latent inequality. These wage effects extend to percentiles where the minimum is nominally nonbinding, implying spillovers. We are unable to reject that these spillovers are due to reporting artifacts, however. (JEL J22, J31, J38, K31)