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The impact of minimum wage on the labour market in Estonia: an empirical analysis

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  • Marit Hinnosaar

    ()

  • Tairi Rõõm

    ()

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    Abstract

    In Estonia, as in several other EU acceding countries, minimum wage has been on an upward trend and in the coming years it will expectedly be raised faster than the average wage. Despite its rapid increase, the impact of the minimum wage on Estonian labour market has not been analysed. The current paper aims to fill this gap. We estimate the effect of the minimum wage on employment and wages in Estonia during the period of 1995-2000, using micro-data from Estonian Labour Force Surveys. The estimation results indicate that a minimum wage increase leads to employment reduction for the group of workers who are directly affected by this change, ie those whose wages have to be raised as a result. Additional negative effect of raising the minimum wage is that the rate of compliance with this regulation diminishes as a result, thereby enlarging the share of workers whose salaries remain below the legally set minimum.

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    File URL: http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud/_2003/_8_2003/wp_803.pdf
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    Bibliographic Info

    Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2003-8.

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    Length: 43 pages
    Date of creation: 12 Oct 2003
    Date of revision: 12 Oct 2003
    Publication status: published
    Handle: RePEc:eea:boewps:wp2003-08

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    Phone: +3726680719
    Fax: +3726680900
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    Web page: http://www.bankofestonia.info
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    Postal: Estonia bld. 13, 15095 Tallinn, ESTONIA
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    References

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    1. Neumark, D. & Schweitzer, M. & Wascher, W., 1999. "The Effect of Minimum Wages Throughout the Wage Distribution," Papers 9919, London School of Economics - Centre for Labour Economics.
    2. David Card & Alan Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," Working Papers 694, Princeton University, Department of Economics, Industrial Relations Section..
    3. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," NBER Working Papers 4058, National Bureau of Economic Research, Inc.
    4. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section..
    5. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
    6. Stephen Machin & Alan Manning & Lupin Rahman, 2002. "Where the Minimum Wage Bites Hard: the Introduction of the UK National Minimum Wage to a Low Wage Sector," CEP Discussion Papers dp0544, Centre for Economic Performance, LSE.
    7. Richard Dickens & Stephen Machin & Alan Manning, 1994. "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain," CEP Discussion Papers dp0183, Centre for Economic Performance, LSE.
    8. Janet Currie & Bruce C. Fallick, 1996. "The Minimum Wage and the Employment of Youth Evidence from the NLSY," Journal of Human Resources, University of Wisconsin Press, vol. 31(2), pages 404-428.
    9. repec:fth:prinin:298 is not listed on IDEAS
    10. Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring.
    11. Charles Brown & Curtis Gilroy & Andrew Kohen, 1982. "The Effect of the Minimum Wage on Employment and Unemployment: A Survey," NBER Working Papers 0846, National Bureau of Economic Research, Inc.
    12. David Neumark & William Wascher, 1995. "The Effects of Minimum Wages on Teenage Employment and Enrollment: Evidence from Matched CPS Surveys," NBER Working Papers 5092, National Bureau of Economic Research, Inc.
    13. John M. Abowd & Francis Kramarz & Thomas Lemieux & David N. Margolis, 1997. "Minimum Wages and Youth Employment in France and the United States," NBER Working Papers 6111, National Bureau of Economic Research, Inc.
    14. David Neumark, 1999. "The Employment Effects of Recent Minimum Wage Increases: Evidence from a Pre-specified Research Design," NBER Working Papers 7171, National Bureau of Economic Research, Inc.
    15. Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S29-59, Supplemen.
    16. Gabor Kertesi & Janos Kollo, 2002. "Labour Demand with Heterogeneous Labour Inputs after the Transition in Hungary, 1992-1999 - and the Potential Consequences of the Increase of Minimum Wage in 2001 and 2002," Budapest Working Papers on the Labour Market 0205, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    17. Edward M. Gramlich, 1976. "Impact of Minimum Wages on Other Wages, Employment, and Family Incomes," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 409-462.
    18. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
    19. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S87-104, August.
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    Cited by:
    1. Marit Hinnosaar, 2004. "The Impact Of Benefit And Tax Reforms On Estonian Labor Market In A General Equilibrium Framework," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 31, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    2. World Bank, 2007. "Bulgaria - Accelerating Bulgaria's Convergence : Volume 2. The Challenge of Rasing Productivity," World Bank Other Operational Studies 7876, The World Bank.
    3. Asad Alam & Mamta Murthi & Ruslan Yemtsov & Edmundo Murrugarra & Nora Dudwick & Ellen Hamilton & Erwin Tiongson, 2005. "Growth, Poverty and Inequality : Eastern Europe and the Former Soviet Union," World Bank Publications, The World Bank, number 7287.

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