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How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe

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  • Bodnár, Katalin
  • Fadejeva, Ludmila
  • Iordache, Stefania
  • Malk, Liina
  • Paskaleva, Desislava
  • Pesliakaitė, Jurga
  • Jemec, Nataša Todorović
  • Tóth, Peter
  • Wyszyński, Robert

Abstract

We study the transmission channels for rises in the minimum wage using a unique firm-level dataset from eight Central and Eastern European countries. Representative samples of firms in each country were asked to evaluate the relevance of a wide range of adjustment channels following specific instances of rises in the minimum wage during the recent post-crisis period. The paper adds to the rest of literature by presenting the reactions of firms as a combination of strategies, and evaluates the relative importance of those strategies. Our findings suggest that the most popular adjustment channels are cuts in non-labour costs, rises in product prices, and improvements in productivity. Cuts in employment are less popular and occur mostly through reduced hiring rather than direct layoffs. Our study also provides evidence of potential spillover effects that rises in the minimum wage can have on firms without minimum wage workers. JEL Classification: D22, E23, J31

Suggested Citation

  • Bodnár, Katalin & Fadejeva, Ludmila & Iordache, Stefania & Malk, Liina & Paskaleva, Desislava & Pesliakaitė, Jurga & Jemec, Nataša Todorović & Tóth, Peter & Wyszyński, Robert, 2018. "How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe," Working Paper Series 2122, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20182122
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    References listed on IDEAS

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    More about this item

    Keywords

    adjustment channels; firm survey; minimum wage;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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