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Minimum Wage Effects on Wages, Employment and Prices: Implications for Poverty Alleviation in Brazil

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  • Sara Lemos

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Abstract

This paper presents new evidence on the effects of the minimum wage using Brazilian monthly household and firm panel data between 1982 and 2000. By examining the effects on wages, employment and prices together we are able to provide an explanation for the small employment effects prevalent in the literature. Our principal finding is that increasing the minimum wage raises wages and prices with small adverse employment effects. This suggests a general wage-price inflationary spiral, where persistent inflation offsets some of the wage gains. The main policy implication deriving from these results is that the potential of the minimum wage to help the poor is bigger under low inflation. Under high inflation, the resulting wage-price spiral makes the minimum wage increase - as well as its antipoverty policy potential - short lived. In this case, the wage effects are volatile and the permanent scars are lower employment and higher inflation in Brazil.

Suggested Citation

  • Sara Lemos, 2005. "Minimum Wage Effects on Wages, Employment and Prices: Implications for Poverty Alleviation in Brazil," Discussion Papers in Economics 05/15, Division of Economics, School of Business, University of Leicester.
  • Handle: RePEc:lec:leecon:05/15
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    File URL: https://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp05-15.pdf
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    Cited by:

    1. Arango-Thomas, Luis Eduardo & Ardila, Luz Karine & Gómez, Miguel Ignacio, 2011. "Efecto del cambio del salario mínimo en el precio de las comidas fuera del hogar en Colombia," Chapters, in: López Enciso, Enrique & Ramírez Giraldo, María Teresa (ed.),Formación de precios y salarios en Colombia T.2, volume 2, chapter 21, pages 873-918, Banco de la Republica de Colombia.
    2. Francisco Javier Lasso Valderrama, 2010. "INCREMENTOS DEL SALARIO MÍNIMO LEGAL: ¿cuál es el impacto redistributivo del cambio en los precios relativos al consumidor?," Borradores de Economia 598, Banco de la Republica de Colombia.
    3. David Neumark & Luis Felipe Munguia Corella, 2019. "Do Minimum Wages Reduce Employment in Developing Countries? A Survey and Exploration of Conflicting Evidence," NBER Working Papers 26462, National Bureau of Economic Research, Inc.
    4. Stijn Broecke & Alessia Forti & Marieke Vandeweyer, 2017. "The effect of minimum wages on employment in emerging economies: a survey and meta-analysis," Oxford Development Studies, Taylor & Francis Journals, vol. 45(3), pages 366-391, July.
    5. Cornel Ban, 2013. "Brazil's liberal neo-developmentalism: New paradigm or edited orthodoxy?," Review of International Political Economy, Taylor & Francis Journals, vol. 20(2), pages 298-331, April.

    More about this item

    Keywords

    minimum wages; employment; labor costs; cost shock; Brazil;

    JEL classification:

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

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