2026 - Edition 105 | September 08

New IMDS report analyzes the effects of the minimum wage and its position on the Brazilian wage structure

Hello reader,

The minimum wage is one of the most important institutions in the Brazilian labor market. It establishes a floor for workers' compensation, influences income outside the formal sector, and serves as a reference for social security and assistance benefits. Therefore, its effects go beyond the labor market and reach dimensions such as inequality, poverty, productivity, and public accounts.

In a new report, "Minimum Wage and the Labor Market: National and International Evidence and Implications for the Brazilian Case", IMDS gathers national and international evidence on the effects of the minimum wage and analyzes its position in the Brazilian wage structure. The study was developed by Valdemar Pinho Neto (FGV), Leandro da Rocha (IMDS), Pedro H. Chaves Maia (UEL), Fernando Veloso (IMDS) and Paulo Tafner (IMDS). The results of the study were highlighted in an article published by Folha de S.Paulo.

Economic literature accumulated in recent decades shows that the impact of the minimum wage depends on the context in which the policy is implemented. In many cases, increases in the minimum wage raise the income of low-paid workers and contribute to reducing wage inequality, with relatively modest effects on employment. At the same time, studies also identify responses at other margins, such as prices, profits, productivity, turnover, informality, and job composition.

In Brazil, this discussion has some particularities. The minimum wage is national, but it applies to very heterogeneous labor markets in terms of remuneration, productivity, sectoral composition, and informality. In addition, it works as a reference for social security and assistance benefits, expanding both its distributive reach and tax implications.

To complement the literature review, the report analyzes the position of the minimum wage in the wage structure using the Kaitz index, a measure widely used in international comparisons. The indicator relates the floor to a reference wage. In the report, we adopted as the main measure the median wage, which better represents the typical salary of workers and is less influenced by very high earnings.

In the international comparison, the Brazilian minimum wage corresponded, in 2024, to 65.2% of the median wage. Among the countries analyzed, Brazil had the sixth highest Kaitz index, behind only Colombia, Costa Rica, Chile, Mexico, and New Zealand. The result indicates that the Brazilian minimum wage is relatively close to the median income when compared to that observed in other economies.

The historical analysis also shows an important change over time. Between the mid-1990s and the end of the 2000s, the real appreciation of the minimum wage was accompanied by a significant approximation of the floor in relation to the median wage in the country. The index went from approximately 40% to about 70% in this period. In the following years, it showed greater stability, although it still registered oscillations.

Differences within Brazil itself are even more striking. In 2025, the minimum wage corresponded to 100% of the median wage in Alagoas and Maranhão, 99% in Paraíba and Piauí, and 98% in Bahia and Rio Grande do Norte. At the other extreme, this ratio was 49% in the Federal District, 52% in Santa Catarina, 54% in Mato Grosso, and 57% in São Paulo.

These figures, of course, do not mean that a minimum wage is "too high" or "too low" in a given region, nor do they allow us to identify, in isolation, its causal effects on employment or informality. The Kaitz index is a descriptive measure. Its importance lies in showing where the floor is closest to the local wage structure and, therefore, where any adjustments may have different economic consequences.

This heterogeneity helps to put the debate on minimum wage in a broader perspective. Politics has played an important role in raising income and reducing wage inequality, but its benefits need to be analyzed together with possible effects on employment, informality, productivity, the dynamics of firms, and fiscal sustainability. In Brazil, this last dimension is particularly relevant because several social security and assistance benefits are linked to the floor.

The challenge, therefore, is not simply to decide whether or not to value the minimum wage. It is to find a trajectory that preserves its important distributional gains, taking into account productivity, informality, regional differences, and the fiscal consequences of the policy. This is the reflection that we seek to stimulate in this new report.

See you in the next "Letter from IMDS"!

Paulo Tafner
CEO