The effect of minimum wage increases on inflation

Abstract

The wage level that employers cannot legally go below by setting a floor limit on wages is called the "minimum wage". In other words, the minimum wage is usually the lowest wage determined to meet the basic needs of workers. This wage is set to raise the living standards of workers and to reduce poverty. As a result of the increases in food prices in international markets in 2021 and especially in 2022, a food crisis emerged in the world economy in 2022. While the effects of the COVID-19 pandemic were overcome in 2021, the prices increased as a result of increased demand, on the other hand, at the beginning of 2022, the Russia-Ukraine tension triggered the food crisis while pushing food prices up. While rising prices affected fixed incomes the most, it became necessary to increase the minimum wage. Increasing the minimum wage encourages consumption by reducing poverty and increasing fixed income (workers) well-being. The increase in the minimum wage encourages consumption by reducing poverty and increases the welfare of the fixed income (workers), and on the one hand, increases the costs of the producers and leads to a decrease in production and unemployment. While increases can help improve workers' living standards, they can also have negative effects, such as reducing worker numbers or increasing costs for some businesses. The main purpose of this research is to examine that while increasing the minimum wage in the inflationary period is inevitable, it will again increase the general level of prices and trigger inflation.