More Than a Floor: Analysing the Distributive and Employment Impacts of a Wage Policy

ABSTRACT This paper examines the distributive impact and labour market spillovers of Uruguay's wage policy, which combines a national minimum wage with over 200 sectoral wage floors established through collective bargaining. Using matched employer–employee administrative data, we find that the wage policy reduces wage inequality by 3–6 log points in the lower tail of the wage distribution, particularly among male workers and in the early years of its implementation. Analysis of job dynamics reveals that inequality persists in specific groups with higher job displacement rates (4–8 percentage points), primarily observed in the lower end of the wage distribution and in highly impacted sectors. Despite this displacement, employment effects are minimal for these groups and virtually non‐existent for those experiencing lower job displacement.