Effects of Minimum Wage Changes on the Wage Distribution in Low-wage and High-wage Sectors

Research background: The number of research regarding employment effects of minimum wages is enormous. Another problem examined by prior studies is the impact of minimum wage increases on the wages. The evidence shows that minimum wage increases compress the wage distribution. The same literature brings conflicting evidence regarding minimum wage spill-over effects. Purpose of the article: The study analyses the effects of a minimum wage increase on the wage distribution of low- and high-wage sectors and possible spill-overs. The analysed period 2014-2018 is characterized by relatively stable economic conditions, while the minimum wage increased by 25%. Methods: We follow case study method and as example Poland, the EU country with high share of minimum wage workers. We use individual data on wages and worker characteristics from the Structure of Earnings Survey in Poland for 2014–2018. We use reweighting and decompose counterfactual wage distribution. Findings & value added: In low-wage sector, a wage increase in the left tail of the distribution is almost entirely due to the increase in the minimum wage level and spill-over effects are present throughout the distribution. In high-wage sector the role of the minimum wage growth is weaker and also the workers’ characteristics have substantial impact on wages; no spill-over effects of a minimum wage increase are observed. We demonstrate that the conflicting evidence on the effects of minimum wage changes on the wage distribution may occur because the effects differ across the low- and high-paid economic sectors. They depend on sector productivity and openness.