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The Effect of the Minimum Wage on the Average Wage in France (in French)

Author

Listed:
  • Gilbert Cette
  • Valérie Chouard
  • Grégory Verdugo

Abstract

This study investigates the impact of minimum wage (SMIC) increases on the average wage in France. We use two series of average wage: the average hourly blue-collar wage rate (SHBO) and the average wage per capita (SMPT). We combine these series with aggregate data for the overall economy over four decades from 1970 to 2009, going from the SMIC first implementation (in 1970) to the change in the annual calendar of mandatory increases (in 2009) from the 1st of July to the 1st of January by the law of the 3rd December 2008. We provide three original contributions with respect to the existing literature. First, our study is based on data from a much longer period of time which gives us more information. Second, the models we estimate allow for a very gradual impact of the minimum wage on the average wage, while previous studies often assumed only an immediate impact. Third, we differentiate the impact of minimum wage increases on the average wage by distinguishing between the effects of each of the three sources of increase. Our results confirm the advantages of this approach. Because of the discretionary increases of the minimum wage from the government (the so-called coup de pouces ), the minimum wage increased more rapidly than the average wage over the period 1970-2009. Our estimates suggest that the impact on the average wage of minimum wage increases is strong. This impact is larger than in previous studies because our models take into account the existence of dynamic diffusion effects. Finally, minimum wage increases related to the legal indexation to half of the increase in the purchasing power of the SHBO have a large effect on the SHBO itself. This result suggests that a feedback effect between the minimum wage and the SHBO is possible and could trigger the dynamics between these series. As a consequence of the legal system of revaluation of the minimum wage and of the impact of these increases on the average wage, France is probably one of the industrialized countries where competitiveness is the most threatened by inflation volatility.

Suggested Citation

  • Gilbert Cette & Valérie Chouard & Grégory Verdugo, 2012. "The Effect of the Minimum Wage on the Average Wage in France (in French)," Working papers 366, Banque de France.
    • Handle: RePEc:bfr:banfra:366
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    References listed on IDEAS

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    2. Gregory Verdugo & Henri Fraisse & Guillaume Horny, 2012. "Évolution des inégalités salariales en France. Le rôle des effets de composition," Revue économique, Presses de Sciences-Po, vol. 63(6), pages 1081-1112.
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    2. Verdugo, Gregory, 2014. "The great compression of the French wage structure, 1969–2008," Labour Economics, Elsevier, vol. 28(C), pages 131-144.
    3. Ortega, Javier & Verdugo, Gregory, 2014. "The impact of immigration on the French labor market: Why so different?," Labour Economics, Elsevier, vol. 29(C), pages 14-27.
    4. Arni, Patrick & Eichhorst, Werner & Pestel, Nico & Spermann, Alexander & Zimmermann, Klaus F., 2014. "Kein Mindestlohn ohne unabhängige wissenschaftliche Evaluation," IZA Standpunkte 65, Institute of Labor Economics (IZA).

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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