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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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  • Lemos, Sara, 2004. "The Effect of the Minimum Wage on Prices in Brazil," IZA Discussion Papers 1071, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp1071
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    1. Lemos Sara, 2005. "Political Variables as Instruments for the Minimum Wage," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-33, December.
    2. Belser, Patrick. & Rani, Uma., 2010. "Extending the coverage of minimum wages in India : simulations from household data," ILO Working Papers 994584553402676, International Labour Organization.
    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 0403009, University Library of Munich, Germany.
    5. Sara Lemos, 2004. "Are Wage and Employment Effects Robust to Alternative Minimum Wage Variables?," Discussion Papers in Economics 04/4, Division of Economics, School of Business, University of Leicester.
    6. Hoxha Adriatik, 2010. "Causal relationship between prices and wages: VECM analysis for Germany," EuroEconomica, Danubius University of Galati, issue 26, pages 90-106, November.
    7. M. A. Ivanova, 2016. "Analysis of the nature of cause-and-effect relationship between inflation and wage in Russia," Studies on Russian Economic Development, Springer, vol. 27(5), pages 575-584, September.
    8. Gligor Bishev & Tatjana Boshkov, 2015. "Arguments for and Against Retaining Exchange Rate Regime: An Empirical Analysis for Republic of Macedonia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(8), pages 1004-1013, August.

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    More about this item

    Keywords

    employment effect; wage effect; minimum wage; price effect; cost shock;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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