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Do minimum wages raise the NAIRU?

Peter Tulip

No 2000-38, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: A high minimum wage (relative to average wages) raises nominal wage growth and hence inflation. This effect can be offset by extra unemployment; so the minimum wage increases the Non-Accelerating Inflation Rate of Unemployment or NAIRU. This effect is clearly discernible and robust to variations in model specification and sample period. It is consistent with international comparisons and the behavior of prices. I estimate that the reduction in the relative level of the minimum wage over the last two decades accounts for a reduction in the NAIRU of about 1 1/2 percentage points. It can also account for the substantial reduction in the NAIRU in the United States relative to continental Europe.

Keywords: Minimum wage; Unemployment (search for similar items in EconPapers)
Date: 2000, Revised 2000
New Economics Papers: this item is included in nep-lab, nep-ltv and nep-pbe
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Journal Article: Do Minimum Wages Raise the NAIRU? (2004) Downloads
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