Minimum wage violation in Central and Eastern European

M i n i m u m w a g e v i o l a t i o ni n C e n t r a l a n d E a s t e r n E u r o p e

K a r o l i n a G o r a u s

P i o t r L e w a n d o w s k i

W a r s a w I n t e r n a t i o n a l E c o n o m i c M e e t i n g 2 8 J u n e 2 0 1 6

• Reseach focused on employment/inequality effects of MW

• MW policies effective only if employers comply

• Few studies on MW violation in multi-country setting

• CEE countries interesting to analyse compliance:

• Minimum wage established at the national level

• Universal coverage of dependent workers

Motivation: Overlooked issue of compliance

Minimum wages rose in real terms since early 2000s

0

10

20

30

40

50

60

70

80 Real MW growth (2003-2012)

Diverse changes in minimum to average wage ratios

Belgium

Czech Republic

Estonia

France

Greece

Hungary

IrelandLatvia

Lithuania

Netherlands

PolandPortugal

Romania

Slovak Republic

Spain

United Kingdom

0.30

0.32

0.34

0.36

0.38

0.40

0.42

0.44

0.46

0.48

0.50

0.30 0.32 0.34 0.36 0.38 0.40 0.42 0.44 0.46 0.48 0.50

Kai

tz in

dex

,20

13

Kaitz index, 2003

Minimum wage arrangements in CEE10

Country National MW exists

Sub-minimum level

Groups covered by sub-minimum

Higher minimum level

Groups covered by higher MW

Bulgaria Yes No - No -

Czech Republic Yes Yes Youth (until 2012) Yes 6 higher MW levels for better skilled

Estonia Yes No - No -

Hungary Yes No - Yes Skilled workers

Latvia Yes No - Yes Youth and high-risk occupations

Lithuania Yes No - No -

Poland Yes Yes Work experience below one year

No -

Romania Yes No - No -

Slovakia Yes Yes Youth Yes 5 higher MW levels for better skilled

Slovenia Yes No - No -

EU-SILC data for 2003-2012 (income reference period)

• Sample limited to workers aged 25+ who:

• were employed full-time and worked at least 40 hours per week

• had only one job

• were employed full-time in all months of the previous calendar year

• Wages in our sample are consistent with other sources

• Robustness checks with 75% MW and 125% MW thresholds

Three measures of violation (Bhorat, Kanbur, Mayet 2013)

• Incidence of violation

• Individual: 𝑣0 = 1 𝑖𝑓 𝑤 < 𝑤𝑚

0 𝑖𝑓 𝑤 ≥ 𝑤𝑚

• Overall: 𝑉0 = 𝑒𝑚𝑝 𝑣0

𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡; share of violated workers

• Depth of violation

• Individual: 𝑣1 =𝑤𝑚−𝑤

𝑤𝑚 ×𝑣0

• Overall: 𝑉1 = 𝑒𝑚𝑝 𝑣1

𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡; depth of violation per worker

• Average shortfall• 𝑉1/𝑉0; depth of violation per violated worker

Non-compliance low to moderate; shortfall noticeable

0%5%10%15%20%25%30%35%40%45%

0%1%2%3%4%5%6%7%8%

Average 2002-2013

Violaton incidence, V0 (left axis)

Average wage shortfall per underpaid worker, V1/V0 (right axis)

Latvia, Poland, Slovenia – increasing violation

0%

5%

10%

15%

20%

25%

0%

1%

2%

3%

4%

5%

6%

7%

2003-2007 2008-2010 2011-2012

Poland


Average shortfall per undepaid worker, V1/V0 (right axis)

Czech Republic, Estonia, Hungary – decreasing violation

0%

5%

10%

15%

20%

0%

1%

2%

3%

4%

5%

6%

2003-2007 2008-2010 2011-2012

Hungary



Bulgaria, Lithuania, Romania, Slovakia – violation rose in the crisis

0%

5%

10%

15%

20%

25%

30%

0%

2%

4%

6%

8%

10%

12%

2003-2007 2008-2010 2011-2012

Lithuania



Non-compliance via extra hours most common in Poland and Romania

0%

1%

2%

3%

4%

5%

6%

7%

8% Average 2003-2012

Monthly MW violation Hourly MW only violation Hourly MW violation

Violation usually deeper than non-compliance with the most recent hike

0%

1%

2%

3%

4%

5%

6%

7%

8%

Bulgaria CzechRep.

Slovakia Estonia Slovenia Romania Hungary Poland Latvia Lithuania

Decomposition of monthly violation incidence(average 2004-2012)

Violation of only current year MW

Violation of both current and previous year MW

Probability of non-compliance higher for vulnerable workers

Marginal effects. All presented coefficients significant at 1% level. Country dummies, and time trend included.

-0.08-0.06-0.04-0.02

00.020.040.06

med

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hig

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hig

h-s

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1-3

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ales

(is

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-5

)

skill

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)

craf

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7)

mac

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per

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rs (

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agri

cult

ure

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stru

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mar

ket

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smal

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bel

ow

31

41

- 5

5

abo

ve 5

5

tem

po

rary

fem

ale

education(ref. low)

occupations (ref. elementary) sector (ref. industry) firm size(ref. 50 and

more)

age (ref. 31 - 40)

Positive relation between violation incidence and Kaitz index

Violation incidence (V0) vs Kaitz index: descriptive

BG:2003-2007CZ:2003-2007

EE:2003-2007

HU:2003-2007LT:2003-2007

LV:2003-2007

PL:2003-2007

RO:2003-2007

SI:2003-2007

SK:2003-2007BG:2008-2010

CZ:2008-2010

EE:2008-2010

HU:2008-2010

LT:2008-2010

LV:2008-2010

PL:2008-2010

RO:2008-2010

SI:2008-2010 SK:2008-2010

BG:2011-2012CZ:2011-2012

EE:2011-2012

HU:2011-2012

LT:2011-2012

LV:2011-2012

PL:2011-2012

RO:2011-2012

SI:2011-2012

SK:2011-2012

0%

2%

4%

6%

8%

10%

12%

0.25 0.30 0.35 0.40 0.45 0.50

Vio

lati

on

inci

de

nce

(V

0)

Kaitz index

Positive relation between violation incidence and Kaitz index

Violation incidence (V0) vs. the Kaitz index: descriptive

y = 0.1573x - 0.0237R² = 0.1123

0%

2%

4%

6%

8%

10%

12%

0.25 0.30 0.35 0.40 0.45 0.50

Vio

lati

on

inci

de

nce

(V

0)

Kaitz index

No visible relation between GNI and violation? Due to rising Kaitz index

Violation incidence (V0) vs GNI per capita (in PPP): descriptive

Kaitz index vs GNI per capita (in PPP): descriptive

Higher Kaitz and lower GNI associated with higher violation

Between-effects Fixed-effects

GNI per capita, PPP (in int. $k)

-0.001 -0.002***

Kaitz index 0.063 0.314***

Constant 0.0205 0.059***

R-squared 0.08 0.66

10 countries, 85 observations

Monthly MW violation incidence (V0) vs. GNI per capita and Kaitz index:panel regression

Main findings from panel regressions

Kaitz index ↑ non-compliance in all specifications

Higher unemployment rate associated with higher incidence of non-compliance (Kaitz index controlled)

Higher trade union density and bargaining coverage associated with higher incidence of non-compliance (Kaitz index controlled)

No relationship between average shortfall and Kaitz index or GNI

• MW violation in CEE low to moderate but happens also via hours

• Higher relative MW associated with higher incidence of violation…

• … but non-compliance usually goes beyond most recent hike

• Vulnerable workers more likely to be affected

• Balance between MW level, avoidance and enforcement costs

Conclusions

Thank you for your attention

Karolina Goraus

[email protected]

www.wne.uw.edu.pl

Piotr Lewandowski

[email protected]

www.ibs.org.pl

Minimum wage violation in Central and Eastern European

Economy & Finance

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