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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)

  • Ludmila Fadejeva

    (Latvijas Banka)

  • Stefania Iordache

    (Banca Nationala a Romaniei)

  • Liina Malk

    (Eesti Pank)

  • Desislava Paskaleva

    (Bulgarian National Bank)

  • Jurga Pesliakaite

    (Lietuvos Bankas)

  • Nataša Todorovic Jemec

    (Banka Slovenije)

  • Peter Tóth

    (Národná 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 contributes to the literature by presenting the reactions of firms to rises in the minimum wage 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, which is the adjustment channel most commonly studied in the empirical literature, 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. Finally, we analyse the different firm-level characteristics that drive the choice of adjustment strategies.

Suggested Citation

  • Katalin Bodnár & Ludmila Fadejeva & Stefania Iordache & Liina Malk & Desislava Paskaleva & Jurga Pesliakaite & Nataša Todorovic Jemec & Peter Tóth & Robert Wyszynski, 2017. "How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe," Working and Discussion Papers WP 9/2017, Research Department, National Bank of Slovakia.
  • Handle: RePEc:svk:wpaper:1050
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    References listed on IDEAS

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    Cited by:

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    4. 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.
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    6. Jose Garcia-Louzao & Linas Tarasonis, 2022. "Wage and employment impact of minimum wage: evidence from Lithuania," GRAPE Working Papers 75, GRAPE Group for Research in Applied Economics.
    7. Csilla Lakatos & Andrea Rucska, 2022. "Health Anxiety Among the Normal Population and Healthcare Professionals in a Highly Disadvantaged Region During Three Waves of COVID-19," European Journal of Social Sciences Articles, Revistia Research and Publishing, vol. 5, July -Dec.
    8. repec:ces:ifodic:v:16:y:2019:i:4:p:50000000004807 is not listed on IDEAS
    9. 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.
    10. 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.
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    More about this item

    Keywords

    minimum wages; 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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