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Erschienen in:
2017 | OriginalPaper | Buchkapitel
7. The Minimum Wage, Income Inequality and the Price-Stability Mandate
verfasst von : Nombulelo Gumata, Eliphas Ndou
Erschienen in: Labour Market and Fiscal Policy Adjustments to Shocks
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Abstract
This chapter explores the impact of a positive shock to the minimum wage growth on income inequality and the role of inflation regimes (alternatively, price stability) in the persistence of minimum wage shocks. We find that persistent positive shocks to the minimum wage growth have a pronounced impact in lowering the Gini coefficient compared to small sized non-persistent shocks. In addition, the impact of the shocks is dependent on the inflation regime. Evidence shows that the Gini coefficient declines more due to large and persistent positive shocks in the low-inflation regime compared to the high-inflation regime.
In policy terms the results imply that a persistently rising minimum wage shock indeed exerts large reduction effects on the Gini coefficient. But this is the case in a low-inflation regime which is accompanied by a high and robust GDP growth rate. Hence, we conclude that low-inflation regimes accompanied by robustly growing GDP regimes are also necessary conditions to ensure a sustained decline in the Gini coefficient. Similarly, firm profitability measured by gross operating surplus plays an important role in reducing the Gini coefficient in response to the increase in the minimum wage. Increased firm profitability and GDP growth are the greatest propagators of the transmission of a positive shock to the minimum wage and lowering of the Gini coefficient. Robust GDP growth, firm profitability and a low inflation regime are necessary conditions to ensure that persistent increases in the minimum wage result in a sustained reduction in income inequality.