Keywords: Minimum wage, NAIRU, unemployment
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.
Full paper (166 KB PDF)
Home | FEDS | List of 2000 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: August 8, 2000