Does minimum wage affect inflation?
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Katedra Makroekonomii, Uniwersytet Łódzki, Polska
Submission date: 2022-09-05
Final revision date: 2022-11-05
Acceptance date: 2022-11-07
Publication date: 2022-12-28
Corresponding author
Aleksandra Majchrowska   

Katedra Makroekonomii, Uniwersytet Łódzki, ul. Rewolucji 1905 r. nr 41, 90-214, Łódź, Polska
Ekonomista 2022;(4):417-436
This study examines the relationship between minimum wage increases and the inflation rate. Data from 16 Polish regional labor markets in 2003-2020 are used to analyze the pass-through effect of the minimum wage on inflation. The New Keynesian model, supported by the Minimum Wage Augmented Phillips Curve approach, and dynamic panel data methods, are utilized. The results show that the minimum wage effect on inflation is statistically significant and positive and is higher when food inflation is the dependent variable. Minimum wage effects vary temporally and across regions. Minimum wage increases are more significant during times of high inflation than in low-inflation periods. As for regional differences, inflationary pressure is greater in regions with strong labor markets and relatively high wages, i.e. regions where companies can pass on more of their increased labor costs to consumers. These findings are important for both the labor market and regional policy, especially given the high inflation rate recently observed in Poland and the minimum wage increases planned over the coming years. They show that even if minimum wage increases do not lead to a reduction in employment, they may generate additional inflationary pressure, especially during economic booms and in regions with low unemployment.
National Science Center Poland, project number: UMO-2017/25/B/HS4/02916
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