Oyvat, Cem ORCID: https://orcid.org/0000-0002-5097-0246, Elgin, Ceyhun and Elveren, Adem Yavuz (2025) Minimum wages in a high-inflation economy: the case of Türkiye. [Working Paper]

Preview

PDF (Author's Accepted Manuscript) 51078 OYVAT_Minimum_Wages_In_A_High-Inflation_Economy_(AAM)_2025.pdf - Accepted Version Available under License Creative Commons Attribution. Download (1MB) | Preview

Abstract

Minimum wage policies are a central instrument for reducing poverty, improving income distribution, and enhancing social protection. Yet their broader macroeconomic impacts remain contested, particularly in developing economies with persistent high inflation. Drawing on a Post-Keynesian framework, this paper examines the impact of minimum wage increases on inflation, unemployment rate, demand, and the trade balance in Türkiye, a country characterized by persistent high inflation and where approximately three-quarters of the workforce earns between 50% and 150% of the minimum wage. Using monthly data from 2005 to 2024 and Structural Vector Autoregression (SVAR) models, we analyze the relationships between minimum wage adjustments, consumer prices, unemployment, capacity utilization, and trade balance. We employ two distinct inflation measures: the Consumer Price Index from TurkStat and the Cost of Living Index from the İstanbul Chamber of Commerce. Our findings indicate that a 10% increase in the minimum wage raises annual inflation by 1.0-2.0 percentage points. This inflationary effect is primarily driven by the cost channel, as opposed to the demand channel. Exchange rate movements emerge as a more powerful inflation driver than wage adjustments in Türkiye's context. The analysis finds no significant evidence that minimum wage increases influence demand-side factors such as capacity utilization, industrial growth, or retail sales. Contrary to traditional predictions, the impact on unemployment is minimal —0.10 to 0.15 percentage points. Moreover, a 10% rise in the minimum wage generates an extra trade deficit amounting to 0.11–0.27% of annual GDP. These results suggest that while minimum wage policy remains a viable tool for improving low-wage workers' welfare, given its moderate inflationary effect and minimal impact on employment, policymakers should consider complementary measures to enhance productivity and non-price competitiveness to mitigate mild negative external balance effects.

Item Type:	Working Paper
Uncontrolled Keywords:	minimum wage, inflation, unemployment, trade balance, Post-Keynesian economics, Türkiye
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions
Faculty / School / Research Centre / Research Group:	Greenwich Business School Greenwich Business School > Political Economy, Governance, Finance and Accountability (PEGFA) Journal of Economic Literature Classification > Political Economy, Governance, Finance and Accountability (PEGFA) Greenwich Business School > School of Accounting, Finance and Economics
Last Modified:	30 Sep 2025 11:13
URI:	https://gala.gre.ac.uk/id/eprint/51078

Actions (login required)

View Item

Downloads