SOCOL CRISTIAN| MARINAS MARIUS MINIMUM WAGE AS A PUBLIC POLICY INSTRUMENT – PROS AND CONS three quarters and the elasticity is relatively low – only 0.04% additional inflation generated by a minimum wage 1% higher. Nevertheless, the general price index reacts to the increase in the industrial producer prices as a consequence of their contemporary shocks(+0.31%), as well as of their shocks after three quarters(+0.28%). Therefore, the companies do not immediately and fully transfer to the final prices the additional production costs generated by the higher prices of industrial goods. The unemployment rate does not explain the dynamics of inflation rate, as it is significant only above the threshold of 10%. By the last equation, we aimed to test the impact of the minimum wage increase on the prices of industrial goods, as they are proxy of competitiveness of companies. If they are forced to purchase more expensive industrial goods, their efficiency will decline and they will be less able to face the external competition. Thus, a minimum wage increase of 1% is transferred to the production costs of industrial companies and consequently to the inflation of the goods in this sector at a rate of only 0.05%. Part of this increase is compensated by the rise in work efficiency, which has a negative impact on the mean production costs and on the price of these goods. To conclude, the econometric testing of the five equations in the context of assuring the statistic validity of the coefficients obtained and of their residues led to the following results with regard to the impact of the minimum wage: the companies adjust the total employment level depending on the evolution of the minimum wage and the contemporary elasticity is lower than and opposite to the annual one; initially, the total employment rises as a result of the higher minimum wage youth employment reacts to a greater extent to minimum wage variations, and the contemporary elasticity is higher than the annual one; initially there is a rise in the employment of population aged 15 to 24 as a result of a higher minimum wage the average wage raises as a result of the minimum wage increase, including as a consequence of the impact of certain positive externalities on the employees who previously earned close to the minimum companies do not immediately transfer to prices the additional wage costs generated by the minimum wage increase and the pass-through is relatively limited the increase in the minimum wage causes a minor decline in the economic competitiveness as a consequence of higher prices of industrial goods VAR model estimation The purpose of this analysis is to model the impact of the minimum wage on three variables – total employment rate, gross average wage and inflation rate – in a VAR(vector autoregression) model for 2000-2015. It allows us to estimate the response of the three variables to a shock of one standard unit of deviation in the minimum wage and the extent to which the variance decomposition of these variables depends on the minimum wage variance. Form an econometric perspective, a VAR model enables the simultaneous analysis of the dynamics of multiple interdependent variables and the estimation of the response of the variables included in the model to a specific shock. A p th order VAR model can be written as in the following equation: y t  A 1 y t  1  A 2 y t  2 ...  A p y t  p  e t where y t =(y 1t , y 2t ,......, y nt ) is an n x 1 vector of the variables y, Ai represents the matrices of the n x n coefficients(for each i= 1,...,p), and e t =(e 1t , e 2t ,......, e nt ) is an n x 1 vector of the non-observable error terms with mean zero and no serial correlation. The four variables were used in stationary form in the VAR model. In order to create a valid VAR model with four variables, we selected the optimal 3 6