Bank of Lithuania
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No 103
2022-03-01

Wage and Employment Impact of Minimum Wage: Evidence from Lithuania

  • Abstract

    This paper evaluates the worker-level effects of a historically large and permanent increase in the minimum wage in Lithuania. Our identification strategy leverages variation in workers’ exposure to the new minimum wage, and exploits the fact that there has been no increase in the minimum wage in previous years, to account for heterogeneous labor market prospects of low-wage workers relative to high-wage workers. Using detailed administrative records to track workers before and after the policy change, we show that the minimum wage hike significantly increased the earnings of low-wage workers. This direct effect was amplified by wage spillovers reaching the median of the income distribution. Overall, we find no negative effects on the employment prospects of low-wage workers. However, we provide suggestive evidence that young workers, highly exposed municipalities, and tradable sectors may be more negatively affected. Taken together, our findings imply an employment elasticity with respect to the minimum wage of -0.021, and an own-wage elasticity of -0.033, suggesting that wage gains dominated employment losses.

    Keywords: Minimum Wage, Employment, Wages.

    JEL codes: J23, J38, J48.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 102
2022-02-15

Dual Returns to Experience

  • Abstract

    In this paper we study how labor market duality affects human capital accumulation and wage trajectories of young workers. Using rich administrative data for Spain, we follow workers since their entry into the labor market to measure experience accumulated under different contractual arrangements and we estimate their wage returns. We document lower returns to experience accumulated in fixed-term contracts compared to permanent contracts and show that this difference is not due to unobserved firm heterogeneity or match quality. Instead, we provide evidence that the gap in returns is due to lower human capital accumulation while working under fixed-term contracts. This difference widens with worker ability, in line with skill-learning complementarity. Our results suggest that the widespread use of fixed-term work arrangements reduces skill acquisition of high-skilled workers, holding back life-cycle wage growth by up to 16 percentage points after 15 years since labor market entry.

    Keywords: labor market duality, human capital, earnings dynamics.

    JEL codes: J30, J41, J63.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 95
2021-11-23

Coworker Networks and the Labor Market Outcomes of Displaced Workers: Evidence from Portugal

  • Abstract

    The use of social contacts in the labor market is widespread. This paper investigates the impact of personal connections on hiring probabilities and re-employment outcomes of displaced workers in Portugal. We rely on rich matched employer-employee data to define personal connections that arise from interactions at the workplace. Our empirical strategy exploits firm closures to select workers who are exogenously forced to search for a new job and leverages variation across displaced workers with direct connections to prospective employers. The hiring analysis indicates that displaced workers with a direct link to a firm through a former coworker are roughly three times more likely to be hired compared to workers displaced from the same closing event who lack such a tie. However, we find that the effect varies according to the type of connection as well as firms’ similarity. Finally, we show that successful displaced workers with a connection in the hiring firm have higher entry-level wages and enjoy greater job security although these advantages disappear over time.

    Keywords: Job Displacement, Coworker Networks, Re-Employment.

    JEL codes: J23, J63, L14.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 40
2021-10-18

Beyond the Traditional Unemployment Rate during Covid-19 in Lithuania

  • Abstract

    This paper provides empirical evidence on the impact of Covid-19 on unemployment and underemployment in Lithuania. Based on the Labor Force Survey, we document the evolution of the unemployment rate using broader definitions that incorporate the underemployed and marginally attached workers. Our results show that, compared to previous recessions, Covid-19 had a milder impact on the Lithuanian labor market. Moreover, Lithuania fared reasonably well relative to other Eurozone countries. However, the data reveal a substantial increase in marginal workers and underemployment during 2020, with women, young workers and individuals in rural areas being most affected by the pandemic-induced recession.

    Keywords: labor market statistics, labor force, unemployment.

    JEL codes: E24, J21, J64

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

     

     

No 86
2021-03-19

Productivity-Enhancing Reallocation during the Great Recession: Evidence from Lithuania

  • Abstract

    This paper studies the impact of the Great Recession on the relationship between reallocation and productivity dynamics in Lithuania. Using detailed microlevel data, we first document the aggregate contribution of firm exit and employment reallocation to productivity growth. Next, we estimate firm-level regressions to confirm the findings and to perform a heterogeneity analysis. This analysis shows that productivity shielded firms from exit, and that this relationship became stronger during the Great Recession. Moreover, we demonstrate that more productive firms experienced on average lower employment losses, and that this effect was even stronger during the economic slump. Taken together, our results suggest that reallocation was productivity-enhancing during the Great Recession. However, the analysis also indicates that reallocation intensity varied with sector's dependence on external financing or international trade as well as market concentration.

    Keywords: firm dynamics, job reallocation, productivity, Great Recession

    JEL Codes E24, E32, L11, J23

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 23
2020-11-09

A First Glance at the Minimum Wage Incidence in Lithuania using Social Security Data

  • Abstract

    This document explores the incidence of the minimum wage in Lithuania. The descriptive analysis exploits high-frequency data on monthly labor income coming from Social Security records between July 2013 and July 2020 to characterize (i) the evolution of the monthly minimum wage, (ii) the percentage of workers who earn the minimum wage, (iii) the bite of the minimum wage in the wage distribution, and (iv) the heterogeneity of the findings with respect to gender and age. The evidence shows that the minimum wage was raised 7 times with an average (real) increase of 7.3% and, on average, less than 10% of the workers earn at most the minimum wage but low-pay incidence is around 20%. In terms of the impact of the wage distribution, the minimum wage relative to the average wage in the economy fluctuates between 45 and 50 percent. Females and young workers exhibit a larger low-pay incidence and minimum wage bite.

    JEL Codes: J38, J48

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 76
2020-06-18

Workers' job mobility in response to severance pay generosity

  • Abstract

    This paper studies the impact of severance pay generosity on workers' voluntary mobility decisions. The identification strategy exploits a major labor market reform in Spain in February 2012 together with the exposure of some workers to a layoff shock. I rely on rich administrative data to estimate a discrete time duration model with dynamic treatment effects. The results show that a decrease in mobility costs induced by a reduction in severance pay made workers who expected to be displaced in the near future more likely to voluntarily leave their employers. The results indicate that policies targeting employers may also affect workers' behavior. They further reveal the relevance of taking into account interactions between employment protection and unemployment insurance.

    JEL Codes: J62, J63, J65.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.

No 68
2019-11-29

Employment and Wages over the Business Cycle in Worker-Owned Firms: Evidence from Spain

  • Abstract

    This paper compares worker-owned firms and mainstream capital-owned enterprises over the business cycle. Specifically, I study whether conventional employees in worker-owned firms enjoy greater employment stability than similar workers in traditional enterprises over the business cycle, and investigate whether this stability is associated with greater volatility of working-time or wages. Unlike the literature that has compared partners of cooperatives to wage-earners of mainstream firms, I compare wage-earners across both type of organizations along the three margins of adjustment. To perform the econometric analysis, I rely on rich Spanish administrative data and panel data methods to account for composition differences between the two types of organizations. The results show that worker-owned firms offer higher job security because they do not adjust employment levels over the business cycle as much as mainstream enterprises. Wages and working-time, instead, are equally responsive across the two types of firms. The findings can be rationalized by the presence of similar labor regulations and differences in the objectives of the two type of organizations. Namely, both types of firms are constrained by regulations, such as the national Labor Code and collective bargaining, on the adjustments they can impose on wages and working-time. However, the social nature of worker-owned firms mitigates employment volatility in these organizations.

    JEL Codes: J21, J31, J54.

    The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.