Abstract In developing economies, where fiscal space is often constrained, the minimum wage is often seen as a potentially important tool for improving living standards and reducing inequality. Yet, rigorous evidence on its effects at the household level – where well-being is ultimately realised – remains scarce. This article provides the first region-wide analysis of the relationship between minimum wages and household income inequality in Latin America, distinguishing between market (pre-tax and public transfer) and disposable (post-tax and public transfer) income to assess whether the observed pattern is consistent with a predistributive interpretation. Using two-way fixed-effects models on a panel of 15 countries from 2003 to 2020, and triangulating results across SWIID, SEDLAC, and LIS, I find that a higher minimum wage is robustly associated with lower household inequality. The association is strongest when the wage floor is measured relative to average pay, and it appears for both market and disposable income. This parallel compression is consistent with a predistributive interpretation, and the findings are robust to controls for partisanship, alternative specifications, and small-cluster inference. Overall, the results suggest that minimum-wage policy can plausibly form part of a broader inequality-reducing policy mix in contexts of high informality and limited fiscal capacity.
Oswaldo A. Mena Aguilar (Mon,) studied this question.