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

Sara Lemos

No 04/24, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

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.

Keywords: minimum wage; labour costs; price effect; cost shock; Brazil (search for similar items in EconPapers)
JEL-codes: J38 (search for similar items in EconPapers)
Date: 2004-08
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Citations: View citations in EconPapers (6)

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