https://macropaperwarehouse.com/authors/daniel-haanwinckel/Daniel HaanwinckelHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/supply-demand-institutions-and-firms-a-theory-of-labor-market-sorting-and-the-wage-distribution/https://macropaperwarehouse.com/papers/supply-demand-institutions-and-firms-a-theory-of-labor-market-sorting-and-the-wage-distribution/<p><strong>Research question.</strong> How do workforce composition (labor supply), labor demand, and minimum wage policy jointly determine the wage distribution in imperfectly competitive labor markets, and what were the quantitative contributions of each force to the dramatic decline in Brazilian wage inequality between 1998 and 2012?</p> <p><strong>Motivation.</strong> Brazil&rsquo;s formal-sector wage inequality fell sharply over this period. Three candidate shocks are well-documented: (1) a large increase in educational attainment — the share of adults completing at least secondary school rose by 20 percentage points (a 68 percent increase) between 1998 and 2012; (2) labor demand shocks, primarily the commodities boom of the 2000s; and (3) a 93.7 percent (66.1 log point) real increase in the federal minimum wage. Existing frameworks analyze these shocks separately — competitive supply/demand models on one side and imperfectly competitive minimum wage models on the other — and therefore cannot detect interactions or jointly explain all observed patterns, including the novel finding that assortative matching between high-wage workers and high-wage establishments rose in 104 out of 151 microregions, a fact inconsistent with the predictions of leading minimum wage models.</p>