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Does aging matter in the impact of the minimum wage on inflation?

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  • Majchrowska, Aleksandra
  • Roszkowska, Sylwia

Abstract

We examine how demographic changes impact the transmission of minimum wage increases to inflation. The minimum wage growth can raise the prices of goods and services and accelerate inflationary processes. At the same time, a shrinking workforce and changes in its structure could lead to changes in the impact of minimum wage increases on the economy. We use the minimum wage augmented Phillips curve framework extended with the demographic variables. We employ the sample of 21 European Union countries in 2003-2023 and panel data techniques. Our study proves that the strength of the minimum wage pass-through effects on inflation depends on demographic factors. Aging of the workforce and shrinking workforce size weakens the impact of minimum wage increase on inflation. Contrary, a lower proportion of the less educated working-age population strengthens the minimum wage pass-through effects on inflation. Our results have important implications for macroeconomic, minimum wage, and education policies.

Suggested Citation

  • Majchrowska, Aleksandra & Roszkowska, Sylwia, 2025. "Does aging matter in the impact of the minimum wage on inflation?," MPRA Paper 123506, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123506
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    References listed on IDEAS

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    1. Honda, Jiro & Miyamoto, Hiroaki, 2021. "How does population aging affect the effectiveness of fiscal stimulus over the business cycle?," Journal of Macroeconomics, Elsevier, vol. 68(C).
    2. Bodnár, Katalin & Nerlich, Carolin, 2022. "The macroeconomic and fiscal impact of population ageing," Occasional Paper Series 296, European Central Bank.
    3. Hernæs, Erik & Kornstad, Tom & Markussen, Simen & Røed, Knut, 2023. "Ageing and labor productivity," Labour Economics, Elsevier, vol. 82(C).
    4. Lee, Jaewoo & Lee, Jungjin & Miyamoto, Hiroaki, 2024. "Aging and Inflation – Regional evidence from Japan and the US," Economics Letters, Elsevier, vol. 235(C).
    5. Katagiri, Mitsuru & Konishi, Hideki & Ueda, Kozo, 2020. "Aging and deflation from a fiscal perspective," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 1-15.
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    Keywords

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    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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