Minimum wages and average wages, analyzing the causality : the cases of Argentina, Brazil and Chile
Paldham, Martin | Riveros, Luis A.
Minimum wage (MW) policies are an old and controversial tradition in Latin America. This controversy develops principally on the different effects that in standard economic analysis are associated to MW policies such as creation of larger unemployment, higher inflation and poorer generation of new job places in the economy. The crucial element in those analyses is the role played by MWs in explaining the movements in the average wage. In this paper the causality links between minimum wages, average wages and prices are explored in the case of three Latin American countries: Argentina, Brazil and Chile. The paper's analysis turns on the structure of causality between MWs on the one hand and average wages and prices on the other. In the case of the three countries, the results are very different. In Argentina, the paper does not find strong evidence of causality running from minimum wages to average wages. The results for Chile are at the other extreme. There are very significant causal links both from price/wage rises to MW-rises and the other way. Finally, the results from Brazil show the strongest causality where the chain goes from price rises to MWs and from MWs to both skilled and unskilled wages.
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