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Macroeconomic Effects of Minimum Wage Increases in an Economy with Wage Underreporting

Author

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  • Anastasiia Antonova

    (National Bank of Ukraine
    Kyiv School of Economics)

Abstract

I have built a monetary DSGE model to investigate how wage underreporting in an economy characterized by a minimum wage regime affects the macroeconomic response to a minimum wage increase. The model is calibrated and estimated for Ukraine. The main result is that under a higher degree of wage underreporting, the economy is less responsive to a minimum wage shock. Quantitatively, the magnitude of the response to a minimum wage shock is affected by the share of non-Ricardian households, that is, households that do not have access to financial markets and consequently consume all of their income each period.

Suggested Citation

  • Anastasiia Antonova, 2018. "Macroeconomic Effects of Minimum Wage Increases in an Economy with Wage Underreporting," Visnyk of the National Bank of Ukraine, National Bank of Ukraine, issue 246, pages 10-33.
    • Handle: RePEc:ukb:journl:y:2018:i:246:p:10-33
    DOI: 10.26531/vnbu2018.245.010
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    File URL: https://journal.bank.gov.ua/en/article/2018/246/02
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    References listed on IDEAS

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    1. Castillo, Paul & Montoro, Carlos, 2010. "Monetary Policy in the presence of Informal Labour Markets," Working Papers 2010-009, Banco Central de Reserva del Perú.
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    3. Jordi Galí, 2008. "Introduction to Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework," Introductory Chapters, in: Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework, Princeton University Press.
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    5. Daniel Aaronson & Eric French, 2007. "Product Market Evidence on the Employment Effects of the Minimum Wage," Journal of Labor Economics, University of Chicago Press, vol. 25(1), pages 167-200.
    6. Yun, Tack, 1996. "Nominal price rigidity, money supply endogeneity, and business cycles," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 345-370, April.
    7. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, June.
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    Cited by:

    1. Alisher Tolepbergen, 2021. "Minimum Wage Shocks in an Estimated DSGE Model with Underreporting," NAC Analytica Working Paper 20, NAC Analytica, Nazarbayev University, revised Dec 2021.

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    More about this item

    Keywords

    Minimum wage; wage underreporting; shadow economy; DSGE; non-Ricardian households; New-Keynesian models;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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