The impact of minimum wage on unemployment, prices, and growth: A multivariate analysis for Turkey

Abstract

The aim of this study is to research the impact of minimum wage on unemployment, prices, and growth for the Turkish economy. The data used is monthly and covers the period from January 2005 to March 2017. The producer price index represents prices and the industrial production index represents growth. The Autoregressive Distributed Lag (ARDL) model is used to see the effect of the minimum wage on these variables. An error-correction based Granger causality test is then conducted to see short-run and long-run causalities. The bounds test yields evidence of a long-run relationship between variables. The obtained ARDL results also show that while the minimum wage has a statistically significant effect on unemployment and prices, it does not have a statistically significant effect on production. While there is short-run causality from minimum wage to prices only, the obtained significant error correction terms indicate long-run causality for all of the variables. Consequently, the minimum wage plays a significant role in increasing prices and the number of unemployed people in Turkey.