Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?

Abstract

The magnitude of growth in “underlying” wage inequality in the United States during the 1980s is obscured by a concurrent decline in the federal minimum wage, which itself could cause an increase in observed wage inequality. This study uses regional variation in the relative level of the federal minimum wage to separately identify the impact of the minimum wage from nationwide growth in “latent” wage dispersion during the 1980s. The analysis suggests that the minimum wage can account for much of the rise in dispersion in the lower tail of the wage distribution, particularly for women.