cite: Chao2022
author: Chao, C.-C., Ee, M. S., Nguyen, X., & Yu, E. S. H.
year: 2022
title: "Minimum wage, firm dynamics, and wage inequality: Theory and evidence"
publisher: International Journal Of Economic Theory
uri: https://doi.org/10.1111/ijet.12307
pubtype: article
discipline: economics

country: global
period: 2005-2015
maxlength:
targeting:
group: formal workers
data: WB Doing Business Survey, WDI, ILOSTAT

design: simulation
method: dual economy general-equilibrium model
sample: 43
unit: country
representativeness: national
causal: 1 # 0 correlation / 1 causal

theory: Harris & Todaro rural-urban migration model
limitations: decreasing inequality through increased rural agricultural capital, while reasonable, has to be a prior assumption; short-term firm exit has to be omitted
observation:
  - intervention: minimum wage
    institutional: 1
    structural: 0
    agency: 0
    inequality: income
    type: 0 # 0 vertical / 1 horizontal
    indicator: 1 # 0 absolute / 1 relative
    measures: Gini coeff
    findings: short-term reduction of skilled-unskilled wage gap but increased unemployment, decreased welfare; long-term increased wage equality and improved social welfare
    channels: firm exit from urban manufacturing increases capital to rural agricultural sector
    direction: -1
    significance: 2 # 0 nsg / 1 msg / 2 sg

notes:
annotation: |
  A study looking at the effects of minimum wage increases on a country's income inequality, looking at the impacts in a sample of 43 countries, both LMIC and HIC.
  Using a general-equilibrium model, it finds that there are differences between the short-term and long-term effects of the increase:
  In the short term it leads to a reduction of the skilled-unskilled wage gap, however an increase in unemployment and welfare,
  while in the long term the results are an overall decrease in wage inequality as well as improved social welfare.
  It finds those results primarily stem from LMIC which experience significant effects driven by a long-term firm exit from the urban manufacturing sector thereby increasing available capital for the rural agricultural sector, while in HIC the results remain insignificant.
  The study uses the Gini coefficient for identifying a country's inequality.
  Some limitations of the study include the necessity to omit short-term urban firm exit for the impact to be significant, as well as requiring the, reasonable but necessary, prior assumption of decreased inequality through increased rural agricultural capital.