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Empirical Equations to Estimate the Effect of the Minimum Wage on Prices

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  • Sara Lemos

    ()

Abstract

The few price effect studies available in the literature are grounded on the standard theory prediction that if employers do not respond to minimum wage increases by reducing employment or profits, they respond by raising prices. However, none of them explicitly discusses the theoretical model underlying their empirical equation specification. This paper discusses two simple price equation specifications, assuming perfect and imperfect competition in the output market. Each of these was estimated assuming two different production functions. The data used is a Brazilian household and firm survey from 1982 to 2000. Robust results indicate that the minimum wage raises overall prices in Brazil.

Suggested Citation

  • Sara Lemos, 2004. "Empirical Equations to Estimate the Effect of the Minimum Wage on Prices," Discussion Papers in Economics 04/24, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:04/24
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    File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp04-24.pdf
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    Cited by:

    1. Belser, Patrick. & Rani, Uma., 2010. "Extending the coverage of minimum wages in India : simulations from household data," ILO Working Papers 994584553402676, International Labour Organization.
    2. 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.
    3. Hoxha Adriatik, 2010. "Causal relationship between prices and wages: VECM analysis for Germany," EuroEconomica, Danubius University of Galati, issue 26, pages 90-106, November.
    4. 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.

    More about this item

    Keywords

    minimum wage; labour costs; price effect; cost shock; Brazil;

    JEL classification:

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

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