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Fighting ???Low Equilibria??? by Doubling the Minimum Wage ? Hungary???s Experiment

Author

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  • G??bor Kertei
  • J??nos K??ll?

Abstract

In January 2001 the Hungarian government increased the minimum wage from Ft 25,500 to Ft 40,000. One year later the wage floor rose further to Ft 50,000. The paper looks at the short-run impact of the first hike on small-firm employment and flows between employment and unemployment. It finds that the hike significantly increased labor costs and reduced employment in the small firm sector; and adversely affected the job retention and job finding probabilities of low-wage workers. While the conditions for a positive employment effect were mostly met in depressed regions spatial inequalities were amplified rather than reduced.

Suggested Citation

  • G??bor Kertei & J??nos K??ll?, 2004. "Fighting ???Low Equilibria??? by Doubling the Minimum Wage ? Hungary???s Experiment," William Davidson Institute Working Papers Series 2004-644, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2004-644
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    Cited by:

    1. Mihails Hazans, 2007. "Looking for the workforce: the elderly, discouraged workers, minorities, and students in the Baltic labour markets," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(4), pages 319-349, September.
    2. Kamila Fialová & Martina Mysíková, 2009. "The Minimum Wage: Labor Market Consequences in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(3), pages 255-274, August.
    3. Andras Simonovits, 2008. "Underreported Earnings and Old-Age Pension: An Elementary Model," CERS-IE WORKING PAPERS 0805, Institute of Economics, Centre for Economic and Regional Studies.
    4. Muravyev, Alexander & Oshchepkov, Aleksey, 2013. "Minimum Wages, Unemployment and Informality: Evidence from Panel Data on Russian Regions," IZA Discussion Papers 7878, Institute of Labor Economics (IZA).
    5. Mr. Christopher S Adam & Mr. Edward F Buffie, 2020. "The Minimum Wage Puzzle in Less Developed Countries: Reconciling Theory and Evidence," IMF Working Papers 2020/023, International Monetary Fund.
    6. Gindling, T. H. & Terrell, Katherine, 2004. "The Effects of Multiple Minimum Wages Throughout the Labor Market," IZA Discussion Papers 1159, Institute of Labor Economics (IZA).
    7. Tonin, Mirco, 2011. "Minimum wage and tax evasion: Theory and evidence," Journal of Public Economics, Elsevier, vol. 95(11), pages 1635-1651.
    8. Alexander Muravyev & Aleksey Oshchepkov, 2016. "The effect of doubling the minimum wage on employment: evidence from Russia," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-20, December.
    9. Elek, Peter & Köllő, János & Reizer, Balázs & Szabó, Péter A., 2011. "Detecting Wage Under-reporting Using a Double Hurdle Model," IZA Discussion Papers 6224, Institute of Labor Economics (IZA).
    10. Gábor Kézdi & István Kónya, 2009. "Wage setting in Hungary: evidence from a firm survey," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(3), pages 20-26, October.
    11. Paulina Broniatowska & Aleksandra Majchrowska & Zbigniew ¯ó³kiewski, 2015. "Does minimum wage reduce youth employment on regional labour markets in Poland?," Lodz Economics Working Papers 1/2015, University of Lodz, Faculty of Economics and Sociology.
    12. Álmos Telegdy, 2018. "Wage Inequality on the Hungarian Labour Market: Technological Change, Expansion in Higher Education and the Role of the Minimum Wage," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 17(3), pages 5-28.
    13. Herwig Immervoll, 2007. "Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-Wage Employment," OECD Social, Employment and Migration Working Papers 46, OECD Publishing.
    14. Alexander Muravyev & Aleksey Oshchepkov, 2013. "Minimum wages and labor market outcomes: evidence from the emerging economy of Russia," HSE Working papers WP BRP 29/EC/2013, National Research University Higher School of Economics.
    15. Niall O’Higgins, 2010. "Youth Labour Markets in Europe and Central Asia," Working Papers id:2740, eSocialSciences.
    16. Anna Lukiyanova, 2011. "Effects of Minimum Wages on the Russian Wage Distribution," HSE Working papers WP BRP 09/EC/2011, National Research University Higher School of Economics.
    17. Betcherman, Gordon, 2014. "Labor market regulations : what do we know about their impacts in developing countries ?," Policy Research Working Paper Series 6819, The World Bank.
    18. Szilvia Hamori & Anna Lovasz, 2011. "Can a fifty percent increase in public sector wages improve the position of public sector employees in the long run? An assessment of the public-private income gap in Hungary," Budapest Working Papers on the Labour Market 1106, Institute of Economics, Centre for Economic and Regional Studies.
    19. International Monetary Fund, 2016. "Cross-Country Report on Minimum Wages: Selected Issues," IMF Staff Country Reports 2016/151, International Monetary Fund.
    20. Telegdy, Álmos, 2013. "The Effect of Public Wages on Corporate Compensation in Hungary," IZA Discussion Papers 7524, Institute of Labor Economics (IZA).
    21. Jelena Lauçev, 2012. "Public-Private Earnings Differentials during Economic Transition in Hungary," Budapest Working Papers on the Labour Market 1202, Institute of Economics, Centre for Economic and Regional Studies.

    More about this item

    Keywords

    Minimum wages; Regional labor markets; Transition; Hungary;
    All these keywords.

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • P23 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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