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The Effect of the Minimum Wage on Prices in Brazil

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  • Lemos, Sara

    ()
    (University of Leicester)

Abstract

There is very little empirical evidence on the effects of the minimum wage on prices in the international literature and none whatsoever for developing countries. This paper estimates the minimum wage price effect using monthly Brazilian household and firm data from 1982 to 2000 aggregated at a regional level. Empirical evidence on price effects will help to answer the question of who pays for the higher costs: firms, consumers or the unemployed. The answer to this question is a contribution to the controversial recent debate in the literature over the direction of the minimum wage employment effect. Employment might not be affected if firms are able to pass through to prices the higher labour costs associated to a minimum wage increase. In that case, consumers pay for the increase. Furthermore, if the poor consumers are those buying minimum wage labour intensive goods, or if these goods represent a large proportion of their consumption bundle, then minimum wage increases might hurt rather than aid the poor. Moreover, if minimum wage increases cause inflation, they will hurt the poor further, who disproportionately suffer from it. Robust results indicate that the minimum wage raises overall prices in Brazil. The resulting inflation is slightly higher for the poor than for the rich in the long run, smaller in low inflation periods, and larger in poorer regions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1071.

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Length: 25 pages
Date of creation: Mar 2004
Date of revision:
Publication status: published as: 'Anticipated Effects of the Minimum Wage on Prices' in: Applied Economics, 2006, 38(3), 325-337.
Handle: RePEc:iza:izadps:dp1071

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Keywords: employment effect; wage effect; minimum wage; price effect; cost shock;

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Cited by:
  1. Roberta Gatti & Diego F. Angel-Urdinola & Joana Silva & Andras Bodor, 2014. "Striving for Better Jobs : The Challenge of Informality in the Middle East and North Africa," World Bank Publications, The World Bank, number 19905.
  2. Sara lemos, 2004. "Political Variables as Instruments for the Minimum Wage," Discussion Papers in Economics 04/11, Department of Economics, University of Leicester.
  3. Gabriel Ulyssea & Miguel N. Foguel, 2006. "Efeitos do Salário Mínimo Sobre o Mercado de Trabalho Brasileiro," Discussion Papers 1168, Instituto de Pesquisa Econômica Aplicada - IPEA.
  4. Sara Lemos, 2004. "A Menu Of Minimum Wage Variables For Evaluating Wages and Employment Effects: Evidence From Brazil," Labor and Demography, EconWPA 0403009, EconWPA.
  5. Lemos, Sara, 2004. "Are Wage and Employment Effects Robust to Alternative Minimum Wage Variables?," IZA Discussion Papers 1070, Institute for the Study of Labor (IZA).

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