Does minimum wage reduce income inequality? A cross-country evidence

Abstract

In this study, the effects of minimum wage policies on income inequality are examined by looking at cross-country evidences. By estimating the panel data econometric model, the results show that there are insufficient evidences to support the hypothesis that a country with a minimum wage rate policy enjoys a significant reduction in income inequality. However, the results suggest that higher minimum wage rate reduces the inequality gap of countries that are involved. The policy implication arises from the results in that the mere presence of minimum wage policy does not have any bearing on income inequality in a country. However, the level of minimum wage rate must be high enough to have effect on reducing income inequality but low enough so as not to adversely affect employability in the country