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

52 Pages Posted: 12 Jan 2018

See all articles by Katalin Bodnár

Katalin Bodnár

European Central Bank (ECB)

Ludmila Fadejeva

Latvijas Banka

Stefania Iordache

National Bank of Romania

Liina Malk

Bank of Estonia

Desislava Paskaleva

Bulgarian National Bank

Jurga Pesliakaite

Bank of Lithuania

Nataša Todorović Jemec

Institute of Macroeconomic Analysis and Development

Peter Toth

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Robert Wyszynski

National Bank of Poland

Date Written: January 10, 2018

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.

Keywords: minimum wage, adjustment channels, firm survey

JEL Classification: D22, E23, J31

Suggested Citation

Bodnár, Katalin and Fadejeva, Ludmila and Iordache, Stefania and Malk, Liina and Paskaleva, Desislava and Pesliakaite, Jurga and Todorović Jemec, Nataša and Toth, Peter and Wyszynski, Robert, How Do Firms Adjust to Rises in the Minimum Wage? Survey Evidence from Central and Eastern Europe (January 10, 2018). ECB Working Paper No. 2122, ISBN: 978-92-899-3227-1, Available at SSRN: https://ssrn.com/abstract=3100086

Katalin Bodnár (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ludmila Fadejeva

Latvijas Banka ( email )

Riga
Latvia

Stefania Iordache

National Bank of Romania ( email )

Bucharest
Romania

Liina Malk

Bank of Estonia ( email )

Estonia Building 13
15095 Tallinn
Estonia

Desislava Paskaleva

Bulgarian National Bank ( email )

str
Sofia, 1040
United States

Jurga Pesliakaite

Bank of Lithuania ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

Nataša Todorović Jemec

Institute of Macroeconomic Analysis and Development ( email )

Gregorčičeva 27
Ljubljana, SI-1000
Slovenia

Peter Toth

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

Robert Wyszynski

National Bank of Poland ( email )

00-919 Warsaw
Poland

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