Do Minimum Wages Raise the NAIRU?

36 Pages Posted: 26 Oct 2000

Date Written: August 2000

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 discernable 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 USA relative to continental Europe.

Suggested Citation

Tulip, Peter, Do Minimum Wages Raise the NAIRU? (August 2000). FEDS Working Paper No. 2000-38. Available at SSRN: https://ssrn.com/abstract=239403 or http://dx.doi.org/10.2139/ssrn.239403

Peter Tulip (Contact Author)

Reserve Bank of Australia ( email )

GPO Box 3947
Sydney, NSW 2001
Australia
61-2-9551-8831 (Phone)

HOME PAGE: http://www.petertulip.com

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