This paper provides a comprehensive assessment of the margins along which firms responded toa large and persistent minimum wage increase in Hungary. We show that employment elasticitiesare negative but small even four years after the reform; that around 75 percent of the minimumwage increase was paid by consumers and 25 percent by firm owners; that firms responded to theminimum wage by substituting labor with capital; and that dis-employment effects were greater inindustries where passing the wage costs to consumers is more difficult. We estimate a model withmonopolistic competition to explain these findings.
Authors
Research Fellow University College London
Attila is an IFS Research Fellow, an Associate Professor of Economics at the University College London and Adjust Professor at the University of Oslo.
Joint Research Centre, European Commission
Journal article details
- DOI
- 10.1257/aer.20171445
- Publisher
- American Economic Review
- Issue
- Volume 109, Issue 8, October 2018, pages 2693-2727
Suggested citation
Harasztosi, P and Lindner, A. (2018). 'Who pays for the minimum wage?' 109(8/2018), pp.2693–2727.
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