Minimum Wage and Inequality: Evidence on the Effects of Minimum Wage Changes on Inequality Indicators in Iran

Articles in Press

Document Type : Research Paper

Authors

1 Assistant Professor, Department of Economics, Ahlul Bayt International University

2 Governance and Public Finance Group, Center for Development Research and Foresight

Abstract

The minimum wage is among the most significant achievements of labor movements in economic history, aiming to improve workers’ living conditions and welfare over time. A key indicator for assessing such improvement is income inequality, as workers mostly belong to the middle- and lower-income groups, whose vulnerability increases as inequality rises. Accordingly, this study examines the impact of minimum wage changes on income inequality in Iran. Annual data from 1984 to 2023 were analyzed using the ARDL model, assessing the effects of minimum wage changes through two indicators: the Gini coefficient and the Palma ratio. The results show that, in the short run, the minimum wage contributes to improving income distribution according to both indicators, while in the long run, firms’ reduced labor demand leads to higher inequality as measured by the Palma ratio. In both models, the estimated coefficients confirm the inverted-U Kuznets hypothesis. However, in the Palma model, the impact of per capita output growth on inequality emerges with longer lags, indicating that the benefits of growth first reach middle-income deciles before narrowing the gap between the lowest- and highest-income groups. Therefore, adopting a growth strategy that targets all income deciles, such as an inclusive growth strategy, would be more effective.

Keywords

Main Subjects

Applied Theories of Economics

Articles in Press, Accepted Manuscript
Available Online from 02 September 2026

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