Anticipated Effects of the Minimum Wage on Prices

Sara Lemos

No 04/25, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: There is little empirical evidence on the effect of minimum wage increases on prices, particularly for developing countries. This paper estimates this effect using monthly Brazilian household and firm data over 18 years. As minimum wage increases in Brazil are large, frequent and affect a sizable fraction of the labor force, they affect aggregate prices. Because of this expected price effect, rational agents may take such increases as a signal for future price and wage bargains. Indeed, robust results indicate that the minimum wage raises overall prices not only on the month of the increase, but also in the two months before.

Keywords: minimum wage; labor 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 (8)

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