Économie et Statistique n° 448-449 - Minimum Wage - Victimization

Economie et Statistique
Paru le : 25/10/2012
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Effects of minimum-wage rises on average wages

Gilbert Cette, Valérie Chouard et Grégory Verdugo

This study describes the effects of adjustments in the French minimum wage (SMIC) on average wages. We examine two average-wage indicators: the hourly basic wage for manual workers (Salaire Horaire de Base des Ouvriers: SHBO) and the monthly per-capita wage (Salaire Mensuel Par Tête: SMPT). For this purpose, we use aggregated data for the total French economy spanning the four decades from the introduction of the minimum wage in 1970 to the change in the timetable for annual official minimum-wage adjustments in 2009. By comparison with the existing literature, our study displays three original features. First, it was conducted over a far longer period and therefore benefits from a larger information input. Second, our formalizations allow for the possibility of a very gradual impact of the minimum wage on average wages, whereas most earlier studies assumed a more immediate impact. Third, we distinguish between possible effects of minimum-wage adjustments by origin: price indexation, indexation on one-half of the gains in the real hourly basic wage for manual workers (SHBO), and discretionary “boosts”. Thanks to such boosts, the minimum wage grew faster than the average wage in each of the decades between 1970 and 2009. The estimates also show a strong impact of scheduled minimum-wage adjustments on the average wage. In particular, the adjustments due to the regulatory indexation on one-half of the gains in the SHBO have a significant effect on the SHBO itself. This finding suggests a possible strong circularity between the minimum wage and the SHBO, which may fuel the dynamics of the two aggregates. Because of the minimum-wage adjustment regulations and the impact of the adjustments on the average wage, France is unquestionably one of the industrialized countries whose competitiveness would be most vulnerable to major inflation swings.

Economie et Statistique
No 448-449
Paru le : 25/10/2012