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The Effect of the Minimum Wage on Prices in Brazil

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Sara Lemos ()

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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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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 04/6.

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Date of creation: Mar 2004
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Handle: RePEc:lec:leecon:04/6

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

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Find related papers by JEL classification:
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sara Lemos, 2004. "A Menu of Minimum Wage Variables for Evaluating Wages and Employment Effects: Evidence from Brazil," Discussion Papers in Economics 04/3, Department of Economics, University of Leicester. [Downloadable!]
    Other versions:
  2. Sara Lemos, 2003. "Political Variables as Instruments for the Minimum Wage," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] f08, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
    Other versions:
  3. 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). [Downloadable!]
    Other versions:
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