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The Employment Effects of Nearly Doubling the Minimum Wage - The Case of Hungary

Author

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  • Gabor Kertesi
  • Janos Kollo

    (Institute of Economics, Hungarian Academy of Sciences)

Abstract

The effect of minimum wages on employment has been a matter of debate for more than a decade. Apart from a few cases (Puerto Rico, Indonesia, Columbia) the empirical works analysed the aftermaths of minor increases in the minimum wage, and yielded mixed results. Hungary 2000-2002 provides a unique opportunity to look at the effects of an exceptionally large minimum wage hike in a relatively developed market economy. Unexpectedly, the country's right-wing government increased the statutory minimum by 96 per cent (XX per cent in real terms) in only two steps between December 2000 and January 2002. The paper looks at the short-run effects of the first hike (57 per cent). It finds that increasing the minimum wage significantly reduced employment in the small firm sector and adversely influenced the jobloss and job finding probabilities of low-wage workers. The effects appear to be stronger in low-wage segments of the market, and depressed regions, where the minimum wage bites deeper into the wage distribution.

Suggested Citation

  • Gabor Kertesi & Janos Kollo, 2003. "The Employment Effects of Nearly Doubling the Minimum Wage - The Case of Hungary," Budapest Working Papers on the Labour Market 0306, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:bworkp:0306
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    References listed on IDEAS

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    Cited by:

    1. Gábor Kézdi & István Kónya, 2009. "Wage setting in Hungary: evidence from a firm survey," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 4(3), pages 20-26, October.
    2. Csillag, István, 2009. "Van-e visszaút?. A gazdasági növekedés tényezőit felemésztő koraszülött jóléti állam [Is there any way out?. How a premature welfare state feeds on the factors conducive to economic growth]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 648-672.
    3. Anna Maria Ferragina & Francesco Pastore, 2008. "Mind The Gap: Unemployment In The New Eu Regions," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 73-113, February.
    4. Ágnes Csermely & Péter Harasztosi & Gábor Pellényi, 2012. "Opportunities and challenges – the impact of Chinese competition on Hungarian manufacturing," Chapters, in: Ewald Nowotny & Peter Mooslechner & Doris Ritzberger-Grünwald (ed.), European Integration in a Global Economy, chapter 11, pages 106-118, Edward Elgar Publishing.
    5. Gábor Kátay & Zoltán Wolf, 2008. "Driving Factors of Growth in Hungary - a Decomposition Exercise," MNB Working Papers 2008/6, Magyar Nemzeti Bank (Central Bank of Hungary).
    6. International Monetary Fund, 2004. "Czech Republic: Selected Issues," IMF Staff Country Reports 2004/265, International Monetary Fund.
    7. Péter Harasztosi, 2011. "Growth in Hungary 1994-2008: The role of capital, labour, productivity and reallocation," MNB Working Papers 2011/12, Magyar Nemzeti Bank (Central Bank of Hungary).
    8. Sergey Kapelyuk, 2015. "The effect of minimum wage on poverty," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 23(2), pages 389-423, April.
    9. Kuddo, Arvo, 2009. "Labor laws in Eastern European and Central Asian countries : minimum norms and practices," Social Protection Discussion Papers and Notes 51698, The World Bank.

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    More about this item

    Keywords

    minimum wage; transition;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • P3 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions

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