The Impact of the Minimum Wage on Employment: An EU Panel Data Analysis

Abstract

Minimum wage laws have become one of the most debated state interventions in the economy, being considered by many specialists as a very efficient tool used to correct certain labour market failures. The aim of this paper is to explore the relationship between minimum wage and employment dynamics, with a special focus on some vulnerable categories recognized in the literature (young people, female workers, the elderly, etc.). Thus, we analysed the relation between the dynamics of minimum wages and that of employment in 22 EU countries, panel data (1999–2016). The results suggest a negative impact of the minimum wage on total employment and on sensitive categories (youth, female workers, the elderly). The long-running negative impact holds for all but one group (55–64 years). The models were tested for random and fixed effects and the results were correspondingly adjusted with country and time and random and fixed effects. Cointegration tests and the tests using lagged minimum wage also confirm a robust relationship between the dynamics of the minimum wage and that of employment over time. Our findings are consistent with many previous studies and confirm the recommendations to prudently use this public policy tool.

Relationships between Average Wages in the Manufacturing Sector and Economic Indicators of the Manufacturing Sector in the Region of Visegrad Group Countries

“…Considering wages and employment in the manufacturing sector, the findings of this study support the findings of some recent studies [18][19][20][21] and the claims of Keynes [59] which were made from a macroeconomic point of view, from which it follows that a decrease in employment will be accompanied by an increase in wages. The mentioned approach also confirms the principle of constructing the Philips curve in theory.…”

“…However, it is also necessary to realize that, while the prevailing view among many macroeconomists (dating back to Keynes [59] and Bewley [79]) was in the favour of countercyclical nature and assuming that nominal wages are downward rigid, there is increasing evidence from a combination of studies using surveys [80], administrative data [81,82], and payroll data [83,84] that wages are more flexible. Thus, the assumption deduced from the research results of this study and other recent studies in the European area [18][19][20][21], that the growth of employment should be accompanied by a decrease in the average wages, has its justification. It is possible to work with this information further and to develop this line of thinking.…”

“…In the light of recent research [5][6][7][8][9][10][11][12][13][14][15][16][18][19][20][21][25][26][27], the novelty of this study lies in examining a very specific region within Central Europe and especially focusing on the economy of the manufacturing sector separately. The composition of the selected indicators and the results of their investigation indicate that they create space for further investigation of the issue.…”

“…On the other hand, it turns out that there is no need to push for increasing employment in the manufacturing sector [18][19][20][21]. Rather, there is a need to focus on the support of new technologies, automation, robotization, and the human-centred approach that Industry 5.0 requires [22][23][24].…”

“…The theoretical approaches to the relationship between the level of wages and the level of employment are presented in the literature review section; however, there are also recent studies in the European area dealing with the topic [18][19][20][21]. Most studies examine the relationship in the direction of wages influencing employment.…”