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Do Minimum Wages Raise the NAIRU?
1Federal Reserve Board, (email)
Citation Information: Topics in Macroeconomics. Volume 4, Issue 1, ISSN (Online) 1534-5998, DOI: 10.2202/1534-5998.1163, April 2004
- Published Online:
Maybe a lot. The ratio of the minimum wage to the average wage enters a Phillips-curve equation with a coefficient that is highly significant, stable, and robust. One interpretation of these results is that the relative level of the minimum wage affects the Non-Accelerating Inflation Rate of Unemployment or NAIRU. My estimates are consistent with the reduction in the relative level of the minimum wage since 1980 lowering the U.S. NAIRU about 1½ percentage points, while raising the NAIRU in continental Europe. However, other interpretations are also possible.