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While economists have vigorously debated the effect of the minimum wage on employment levels for at least six decades (cf. Stigler, 1946), its contribution to the evolution of earnings inequality—that is, the shape of the earnings distribution—was largely overlooked prior to the seminal 1996 contribution of DiNardo, Fortin and Lemieux (DFL hereafter). Using kernel density techniques, DFL produced overwhelming visual evidence that the minimum wage substantially

‘held up’the lower tail of the US earnings distribution in 1979, yielding a pronounced spike in hourly earnings at the nominal minimum value, particularly for females. By 1988, however, this spike had virtually disappeared. Simultaneously, the inequality of hourly earnings increased markedly in both the upper and lower halves of the wage distribution. Most relevant to this paper, the female 10/50 (‘lower tail’) log hourly earnings ratio expanded by 23 log points (two thirds) between 1979 and 1988, while male and pooled-gender 10/50 ratios grew by 5.7 and

10.5 log points in the same interval (Table 1). To assess the causes of this rise, DFL constructed counterfactual wage distributions that potentially account for the impact of changing worker characteristics, labor demand, union penetration, and minimum wages on the shape of the wage distribution. Comparing counterfactual with observed wage densities, DFL conclude that the erosion of the federal minimum wage—which declined in real terms by 30 log points between 1979 and 1988—was the predominant cause of rising lower tail inequality between

1979 and 1988, explaining two-thirds of the growth of the 10/50 for both males and …