Do Minimum Wages Make Wages More Rigid? Evidence from French Micro Data

84 Pages Posted: 30 May 2019

See all articles by Erwan Gautier

Erwan Gautier

Banque de France - Centre de Recherche

Sébastien Roux

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Milena Suarez-Castillo

Banque de France

Date Written: May 1, 2019

Abstract

How do minimum wages (MW) shape the aggregate wage dynamics when wage adjustment is lumpy? In this paper, we document new empirical findings on the effect of MW on wage rigidity using quarterly micro wage data matched with sectoral bargained MW. We estimate a micro empirical model of wage rigidity taking into account minimum wage dynamics and we use a simulation method to investigate implications of lumpy micro wage adjustment for the aggregate wage dynamics. Our main findings are the following. Both national and sectoral MW have a large effect on the timing and on the size of wage adjustments. At the aggregate level, MW contribute to amplify, by a factor of 1.7, the response of wages to past inflation. Ignoring MW leads to underestimate the speed of aggregate wage adjustment by about a year. The elasticities of wages with respect to past inflation, the national MW and industry-level MW are respectively 0.42, 0.17 and 0.16. Finally, there are significant spillover effects of the NMW on higher wages transiting through industry-level MW.

Keywords: wage rigidity, minimum wage, collective bargaining

JEL Classification: E24; E52; J31; J50

Suggested Citation

Gautier, Erwan and Roux, Sébastien and Suarez-Castillo, Milena, Do Minimum Wages Make Wages More Rigid? Evidence from French Micro Data (May 1, 2019). Banque de France Working Paper May 2019, WP #720 , Available at SSRN: https://ssrn.com/abstract=3394841 or http://dx.doi.org/10.2139/ssrn.3394841

Erwan Gautier

Banque de France - Centre de Recherche ( email )

31 rue Croix des Petits Champs
75049 Paris Cedex 01
France

Sébastien Roux (Contact Author)

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Milena Suarez-Castillo

Banque de France ( email )

Paris
France

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