The Effect of Minimum Wage on Prices: the Case of Russia

Minimum wage (MW) in Russian Federation is the officially established level of the lowest monthly wage in enterprises of any type of ownership. It usually is considered as a tool to prevent poverty and income inequality. However, the recent studies show that minimum wage can not only have positive influence on people, but also it can worse off the state of some population group. The main goal of this paper is to analyze the effect of the change in the minimum wage on prices for consumers and producers in Russia. This research provides results by examining Russian framework of the labor market and estimating partial equilibrium models based on data on minimum wage, producers price index and consumer price index in 2007-2009. Analysis of this work draws on methodology introduced by Lemos in 2006. In particular, the price changes at the regional level relate to the changes in minimum wages in a panel setting. Results of this paper suggest positive consequences of minimum wage increase on prices change. Moreover, this effect is greater for regions with federal minimum wage than for regions with regional own one both in 2007 and in 2009. Conclusions of this study can be used by forming the policy in the labor market.