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The B.E. Journal of Macroeconomics

Editor-in-Chief: Abraham, Arpad / Cavalcanti, Tiago

Ed. by Carceles-Poveda , Eva / Kambourov, Gueorgui / Lambertini, Luisa / Ruhl, Kim

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Do Minimum Wages Raise the NAIRU?

Peter Tulip1

1Federal Reserve Board,

Citation Information: Topics in Macroeconomics. Volume 4, Issue 1, ISSN (Online) 1534-5998, DOI: 10.2202/1534-5998.1163, April 2004

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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.

Keywords: NAIRU; minimum wage

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