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

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.

Minimum wages and employment retention: A microeconometric study for Estonia

“…The results are, however, in accordance with the finding in Bodnár et al (2018) where only a few firms in Estonia report that they find firing of staff a relevant adjustment channel after hikes in the minimum wage. The results are also in line with a number of studies from other countries, which find little or no effect of minimum wages on employment or employment retention, at least as long as the minimum wage remains at moderate levels (see the reviews by Belman & Wolfson, 2014, ch.…”

“…Estonia shares many economic and institutional features with other European postcommunist countries but there are very few studies from this region. A survey conducted within the framework of the ECB Wage Dynamics Network asked firms in a number of CEE countries how they had reacted to increases in the minimum wage in the period 2010-2013 (Bodnár et al, 2018). The most important adjustment channels were increases in productivity, cuts in non-labour costs and price increases, while the least important channel was firing of staff.…”

Negotiating wage (in)equality: changing union strategies in high-wage and low-wage sectors in Czechia and Slovakia

“…After 2014, in conditions of the labour market inclusion of unskilled jobseekers, wage inequalities declined slightly, while the national minimum wage increased (see Table 3). Employers tended to adjust to such increases by cutting non-labour expenditures, and increasing productivity and product prices (Bodnár et al, 2018; Grossmann et al, 2019).…”

How does employment respond to minimum wage adjustment in China?

“…A NMW may thus enhance aggregate productivity, specifically for the low-paying sector, justifying management practice and public policy of offering higher wage incentives (Rizov et al, 2016). Productivity improvement is a more popular form of adjustment to minimum wage rises than employment reduction, as observed by Bodnár et al (2018) in Central and Eastern European countries. In China, this adjustment channel has involved better inventory management and greater capital investment (Mayneris et al, 2018), with productive firms driving out unproductive ones (Mayneris et al, 2014).…”