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

Author

Listed:
  • Liina Malk
  • Katalin Bodnar
  • Ludmila Fadejeva
  • Stefania Iordache
  • Desislava Paskaleva
  • Jurga PesliakaitÄ—
  • NataÅ¡a Todorović Jemec
  • Peter Tóth
  • Robert WyszyÅ„ski
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 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.

Suggested Citation

  • Liina Malk & Katalin Bodnar & Ludmila Fadejeva & Stefania Iordache & Desislava Paskaleva & Jurga PesliakaitÄ— & NataÅ¡a Todorović Jemec & Peter Tóth & Robert WyszyÅ„ski, 2018. "How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe," Bank of Estonia Working Papers wp2017-12, Bank of Estonia, revised 12 Jan 2018.
    • Handle: RePEc:eea:boewps:wp2017-12
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//http//dx.doi.org/10.23656/25045520/122017/0151
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    Cited by:

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    7. 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.
    8. Maciej Albinowski & Piotr Lewandowski, 2022. "The heterogeneous regional effects of minimum wages in Poland," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 30(2), pages 237-267, April.
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    10. repec:ces:ifodic:v:16:y:2019:i:4:p:50000000004807 is not listed on IDEAS
    11. 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.
    12. 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 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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