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.
Highlights
The debate on the effects of rises in the minimum wage has run for several decades, and the evidence on the impact remains largely disputed
Around 40% of the firms in the sample do not have any employees on the minimum wage, our results indicate potential spillovers from a rise in minimum wages to these firms
6 Conclusions This paper uses a unique firm-level cross-country survey dataset on the adjustment channels preferred by firms following a rise in the minimum wage
Summary
The debate on the effects of rises in the minimum wage has run for several decades, and the evidence on the impact remains largely disputed. The unique questionnaire has been prepared within the third wave of the ECB WDN31 and asks firms in eight of the participating countries (Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovenia) about their strategies for adjusting following the most recent rises in the minimum wage or recent and envisaged rises in Romania These countries, which joined the EU in or after 2004, have a higher share of low-wage earners than other European Union members and have seen significant rises in the minimum wage in recent years coupled with a growing ratio of the minimum wage to average earnings, and so they provide an excellent setting for analysis of transmission channels for minimum wage rises.
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