The Effect of the Minimum Wage on the Average Wage in France

35 Pages Posted: 27 Feb 2012

See all articles by Gilbert Cette

Gilbert Cette

Banque de France

Valérie Chouard

Banque de France

Gregory Verdugo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES)

Date Written: February 1, 2012

Abstract

This study investigates the impact of minimum wage (SMIC) increases on the average wage in France. We use two series of average wage: the average hourly blue-collar wage rate (SHBO) and the average wage per capita (SMPT). We combine these series with aggregate data for the overall economy over four decades from 1970 to 2009, going from the SMIC first implementation (in 1970) to the change in the annual calendar of mandatory increases (in 2009) from the 1st of July to the 1st of January by the law of the 3rd December 2008. We provide three original contributions with respect to the existing literature. First, our study is based on data from a much longer period of time which gives us more information. Second, the models we estimate allow for a very gradual impact of the minimum wage on the average wage, while previous studies often assumed only an immediate impact. Third, we differentiate the impact of minimum wage increases on the average wage by distinguishing between the effects of each of the three sources of increase. Our results confirm the advantages of this approach.

Because of the discretionary increases of the minimum wage from the government (the so-called 'coup de pouces'), the minimum wage increased more rapidly than the average wage over the period 1970-2009. Our estimates suggest that the impact on the average wage of minimum wage increases is strong. This impact is larger than in previous studies because our models take into account the existence of dynamic diffusion effects. Finally, minimum wage increases related to the legal indexation to half of the increase in the purchasing power of the SHBO have a large effect on the SHBO itself. This result suggests that a feedback effect between the minimum wage and the SHBO is possible and could trigger the dynamics between these series. As a consequence of the legal system of revaluation of the minimum wage and of the impact of these increases on the average wage, France is probably one of the industrialized countries where competitiveness is the most threatened by inflation volatility.

Note: Downloadable document is in French.

Keywords: minimum wage, average wage, France

JEL Classification: E24, J31, J58

Suggested Citation

Cette, Gilbert and Chouard, Valérie and Verdugo, Gregory, The Effect of the Minimum Wage on the Average Wage in France (February 1, 2012). Banque de France Working Paper No. 366, Available at SSRN: https://ssrn.com/abstract=2011706 or http://dx.doi.org/10.2139/ssrn.2011706

Gilbert Cette (Contact Author)

Banque de France ( email )

Paris
France

Valérie Chouard

Banque de France ( email )

Paris
France

Gregory Verdugo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

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