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

Author

Listed:
  • Liina Malk
  • Katalin Bodnar
  • Ludmila Fadejeva
  • Stefania Iordache
  • Desislava Paskaleva
  • Jurga PesliakaitÄ—
  • NataÅ¡a Todorović Jemec
  • Peter Tóth
  • Robert WyszyÅ„ski

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 is less popular and occurs 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.

Suggested Citation

  • Liina Malk & Katalin Bodnar & Ludmila Fadejeva & Stefania Iordache & Desislava Paskaleva & Jurga PesliakaitÄ— & NataÅ¡a Todorović Jemec & Peter Tóth & Robert WyszyÅ„ski, 2018. "How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe," Bank of Estonia Working Papers wp2017-12, Bank of Estonia, revised 12 Jan 2018.
    • Handle: RePEc:eea:boewps:wp2017-12
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//http//dx.doi.org/10.23656/25045520/122017/0151
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    Cited by:

    1. Maciej Albinowski & Piotr Lewandowski, 2022. "The heterogeneous regional effects of minimum wages in Poland," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 30(2), pages 237-267, April.
    2. Morakeng Edward Kenneth Lebaka, 2023. "The Significant Role Played by Long Social Connections and a Pleasant Interactive Experience Among Traditional Bapedi Music Practitioners," European Journal of Social Sciences Articles, Revistia Research and Publishing, vol. 6, ejss_v6_i.
    3. Prodromos Prodromidis, 2024. "Causes of the Recent Inflation in Greece and Suggestions for the Future," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 22(1), pages 31-46.
    4. Arindrajit Dube & Attila Lindner, 2024. "Minimum Wages in the 21st Century," RFBerlin Discussion Paper Series 2425, ROCKWOOL Foundation Berlin (RFBerlin).
    5. repec:ces:ifodic:v:16:y:2019:i:4:p:50000000004807 is not listed on IDEAS
    6. Biljana Jovanovic & Nikola Naumovski, 2021. "Minimum wage reform and firms' performance - evidence from North Macedonia," Working Papers 2021-02, National Bank of the Republic of North Macedonia.
    7. Paul Eamets & Amaresh K. Tiwari, 2019. "Minimum Wage in Estonia and its Impact on Employment and Wage Distribution," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 16(04), pages 37-43, January.
    8. Garcia-Louzao, Jose & Tarasonis, Linas, 2023. "Wage and Employment Impact of Minimum Wage: Evidence from Lithuania," Journal of Comparative Economics, Elsevier, vol. 51(2), pages 592-609.
    9. Madalina Ecaterina POPESCU & Amalia CRISTESCU & Ana-Maria GATEA, 2020. "CHALLENGES FOR THE ROMANIAN SMEs ON THE LABOUR MARKET," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 14(1), pages 497-505, November.
    10. Monika Martišková & Marta Kahancová & Jakub Kostolný, 2021. "Negotiating wage (in)equality: changing union strategies in high-wage and low-wage sectors in Czechia and Slovakia," Transfer: European Review of Labour and Research, , vol. 27(1), pages 75-96, February.
    11. Grodzicki, Maciej J. & Możdżeń, Michał, 2021. "Central and Eastern European economies in a Goldilocks age: A model of labor market institutional choice," Economic Modelling, Elsevier, vol. 104(C).
    12. Katalin Bodnár & Ludmila Fadejeva & Stefania Iordache & Liina Malk & Desislava Paskaleva & Jurga Pesliakaitė & Nataša Todorović Jemec & Peter Tóth & Robert Wyszyński, 2018. "How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-30, December.
    13. Chung-Khain Wye & Elya Nabila Abdul Bahri, 2021. "How does employment respond to minimum wage adjustment in China?," The Economic and Labour Relations Review, , vol. 32(1), pages 90-114, March.
    14. Pablo Blanchard & Paula Carrasco & Rodrigo Ceni & Cecilia Parada & Sofía Santín, 2021. "Distributive and displacement effects of a coordinated wage bargaining scheme," Documentos de Trabajo (working papers) 21-26, Instituto de Economía - IECON.
    15. Qianqian Yang & Nobuaki Hamaguchi, 2025. "Should the Industrial Region Fear Hollowing Out by Raising the Minimum Wage?," Discussion Paper Series DP2025-09, Research Institute for Economics & Business Administration, Kobe University.

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    Keywords

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    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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