How Do Minimum Wages Affect Wage Rigidity? Evidence from French Micro Data

We document new empirical findings on the effects of minimum wages on wage rigidity using quarterly micro wage data matched with sectoral minimum wages. We first estimate a micro empirical model of wage rigidity taking into account minimum wage dynamics. We then use a simulation method to investigate implications of lumpy micro wage adjustment for aggregate wages. Both national and sectoral minimum wages have a large effect on the timing and on the size of wage adjustments. At the aggregate level, minimum wages contribute to amplify, by a factor of 1.7, the response of wages to past inflation. Ignoring minimum wages leads to underestimate the speed of aggregate wage adjustment by about one year. The elasticities of wages with respect to past inflation, the national minimum wage and sectoral minimum wages are respectively 0.42, 0.17 and 0.16. Finally, there are significant spillover effects of the national minimum wage on higher wages transiting through sectoral minimum wages.