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Fighting “Low Equilibria” by Doubling the Minimum Wage? Hungary’s Experiment

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Author Info
Kertesi, Gábor (Budapest University of Economics and Institute of Economics Budapest)
Köllo, János () (Institute of Economics Budapest, William Davidson Institute and IZA Bonn)

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Abstract

In January 2001 the Hungarian government increased the minimum wage from Ft 25,500 to Ft 40,000. One year later the wage floor rose further to Ft 50,000. The paper looks at the short-run impact of the first hike on small-firm employment and flows between employment and unemployment. It finds that the hike significantly increased labor costs and reduced employment in the small firm sector; and adversely affected the job retention and job finding probabilities of low-wage workers. While the conditions for a positive employment effect were mostly met in depressed regions spatial inequalities were amplified rather than reduced.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 970.

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Length: 44 pages
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:iza:izadps:dp970

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Related research
Keywords: minimum wages; transition; regional labor markets;

Other versions of this item:

Find related papers by JEL classification:
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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Cited by:
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  1. Andras Simonovits, 2008. "Underreported Earnings and Old-Age Pension: An Elementary Model," IEHAS Discussion Papers 0805, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
  2. Mirco Tonin, 2007. "Minimum Wage and Tax Evasion: Theory and Evidence," IEHAS Discussion Papers 0701, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
    Other versions:
  3. Herwig Immervoll, 2007. "Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-Wage Employment," IZA Discussion Papers 2555, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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This page was last updated on 2009-11-23.

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