Bilateral relationship between the minimum wage and unemployment

Determining minimum wage is one of the strategies to improve the level of welfare of labor force, especially those who are low-skilled. There exists a challenge in Iran regarding this issue among employers, employees and government. This paper investigates a bidirectional relation between real minimum wage and rate during the period 1971-2011 utilizing Toda-Yamamoto and ARDL approaches. Obtained results show that there is not any relationship between these variables implying that wage level does not affect demand for labor force and unemployment. Determining real minimum wage does not comply with unemployment rate. In fact, unemployment rate is not considered in determining minimum wage of the labor force. Furthermore, unemployment rate does not have any influence on real minimum wage. Besides, the analysis of the co-integration relationship between real minimum wage and price index showed that there is no co-integration between the two variables and they do follow each other in the long run.