The Effect of the Minimum Wage on Prices in Brazil

Sara Lemos

No 04/6, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: There is very little empirical evidence on the effects of the minimum wage on prices in the international literature and none whatsoever for developing countries. This paper estimates the minimum wage price effect using monthly Brazilian household and firm data from 1982 to 2000 aggregated at a regional level. Empirical evidence on price effects will help to answer the question of who pays for the higher costs: firms, consumers or the unemployed. The answer to this question is a contribution to the controversial recent debate in the literature over the direction of the minimum wage employment effect. Employment might not be affected if firms are able to pass through to prices the higher labour costs associated to a minimum wage increase. In that case, consumers pay for the increase. Furthermore, if the poor consumers are those buying minimum wage labour intensive goods, or if these goods represent a large proportion of their consumption bundle, then minimum wage increases might hurt rather than aid the poor. Moreover, if minimum wage increases cause inflation, they will hurt the poor further, who disproportionately suffer from it. Robust results indicate that the minimum wage raises overall prices in Brazil. The resulting inflation is slightly higher for the poor than for the rich in the long run, smaller in low inflation periods, and larger in poorer regions.

Keywords: minimum wage; wage effect; employment effect; price effect; cost shock (search for similar items in EconPapers)
JEL-codes: J38 (search for similar items in EconPapers)
Date: 2004-03
New Economics Papers: this item is included in nep-lab
References: View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Working Paper: The Effect of the Minimum Wage on Prices in Brazil (2004)
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