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

Author

Listed:
  • Katalin Bodnár

    (Magyar Nemzeti Bank and European Central Bank)

  • Ludmila Fadejeva

    (Latvijas Banka)

  • Stefania Iordache

    (Banca Naţională a României)

  • Liina Malk

    (Eesti Pank)

  • Desislava Paskaleva

    (Българска народна банка)

  • Jurga Pesliakaitė

    (Lietuvos Bankas)

  • Nataša Todorović Jemec

    (Institute of Macroeconomic Analysis and Development of the Republic of Slovenia)

  • Peter Tóth

    (Národná banka Slovenska)

  • Robert Wyszyński

    (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 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

  • 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," NBP Working Papers 292, Narodowy Bank Polski, Economic Research Department.
  • Handle: RePEc:nbp:nbpmis:292
    Note: The work was conducted within the framework of the Wage Dynamics Network coordinated by the European Central Bank. We thank Juan Francisco Jimeno, Tairi Rõõm, an anonymous referee and the participants of the WDN meetings for helpful comments.
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    References listed on IDEAS

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    Cited by:

    1. Albinowski, Maciej & Lewandowski, Piotr, 2020. "The Heterogenous Regional Effects of Minimum Wages in Poland," IZA Discussion Papers 13412, Institute of Labor Economics (IZA).
    2. Bora Erdem, 2021. "The Role of Social Media in the Times of the Covid-19 Pandemic," European Journal of Social Sciences Articles, Revistia Research and Publishing, vol. 4, July -Dec.
    3. 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.
    4. repec:ces:ifodic:v:16:y:2019:i:4:p:50000000004807 is not listed on IDEAS
    5. 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.
    6. 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.
    7. 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.

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    More about this item

    Keywords

    minimum wage; adjustment channels; firm survey.;
    All these keywords.

    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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