The minimum wage, bargaining power, and the top income share

Much of the argument in support of the minimum wage is its ability to lift workers out of poverty. But the minimum wage also has the potential to influence the relative bargaining power between (non-union) workers and firms and historically this was one of its main purposes. In this paper, we review how the minimum wage can improve workers' bargaining position. We use a state-level panel data set that exploits differences in the minimum wage at the state level to show that higher minimum wages, along with unionization rates and higher top marginal tax rates, are successful in reducing overall income inequality, mainly by reducing the share of income going to the top 1% of the income distribution.