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How Do Firms Adjust to Rises in the Minimum Wage? Survey Evidence fromCentral and Eastern Europe

Author

Listed:
  • Katalin Bodnar

    (European Central Bank)

  • Ludmila Fadejeva

    (Bank of Latvia)

  • Stefania Iordache

    (Banca Nationala a Romaniei,)

  • Liina Malk

    (Eesti Pank)

  • Desislava Paskaleva

    (Bulgarian National Bank)

  • Jurga Pesliakaite

    (Bank of Lithuania)

  • Natasa Todorovic Jemec

    (Banka Slovenije)

  • Peter Toth

    (Narodna banka Slovenska,)

  • Robert Wyszynski

    (Narodowy Bank Polski)

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.

Suggested Citation

  • Katalin Bodnar & Ludmila Fadejeva & Stefania Iordache & Liina Malk & Desislava Paskaleva & Jurga Pesliakaite & Natasa Todorovic Jemec & Peter Toth & Robert Wyszynski, 2017. "How Do Firms Adjust to Rises in the Minimum Wage? Survey Evidence fromCentral and Eastern Europe," Working Papers 2017/04, Latvijas Banka.
  • Handle: RePEc:ltv:wpaper:201704
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    minimum wage; adjustment channels; firm-level survey;

    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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