Anticipated Effects of the Minimum Wage on Prices

There is little empirical evidence on the effect of minimum wage increases on prices, particularly for developing countries. This paper provides estimates of this effect using monthly Brazilian household and firm data over 18 years. As minimum wage increases in Brazil sare large and frequent, they have a potentially important impact on aggregate prices. Rational agents, in anticipation of such price effects, may take minimum wage increases as a signal for future price and wage bargains. We find that the minimum wage raises overall prices not only on the month of the increase, but also in the two months prior to the change as well as after the change.