An empirical analysis on minimum wage and inflation during the post-COVID era

Link Seminar - November 2024

A seminar series designed to connect academic knowledge with pressing policy agendas

Presented by DWP in collaboration with the Universities of Leeds, Loughborough, Sheffield and York, LINK is a webinar series designed to help build richer connections between the academic, policy and analytical worlds by providing an opportunity to hear from both leading Social Scientists at the University of Leeds and other universities as well as prominent analysts, strategists and policy makers from the Department for Work and Pensions.

In this Link Seminar, Dr Fikret Bilenkisi (University of Huddersfield), Dr Filippos Maraziotis (University of York), and Dr M.Akif Yardimci (University of Edinburgh) discuss an empirical analysis on minimum wage and inflation during the post-COVID era.

Abstract: Employing a novel dynamic event study framework that accounts for intertemporal and continuous treatment, and heterogeneous effects, while leveraging quasi-stayers, we examine the causal impact of post-pandemic minimum wage increases on inflation across OECD countries. A 10\% minimum wage increase results in a marginal, statistically significant pass-through to CPI inflation, peaking at 0.87\% in the second month and dissipating by month eight, with an average cumulative effect of 1.5\% over three-quarters. The impact on food inflation is more pronounced and persistent. Minimal spill over to overall wage growth is observed, with only a transient increase in month two and no significant cumulative effect. Firms' unit profits increase negligibly but significantly post-implementation, suggesting higher labour costs are not absorbed via reduced profit margins. Our findings indicate that carefully calibrated minimum wage increases can enhance low-wage workers' earnings without causing substantial or persistent inflationary effects.

If you have any questions, please email the Link Seminars Team

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