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

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1 M i n i m u m w a g e v i o l a t i o n i n C e n t r a l and E a s t e r n E u r o p e P i o t r L e w a n d o w s k i ( I B S, I Z A ) K a r o l i n a G o r a u s - T a ń s k a ( U o f W a r s a w )

2 Minimum wages the NeverEnding Story

3 The existence of regulation doesn t mean compliance Ashenfelter, Smith (1979) probability of getting caught & fine if caught Basu, Chan, Kanbur (2010) government turns a blind eye Bhorat, Kanbur, Stanwix (2015) partial compliance Empirical studies: Bhorat (2014), Rani et al. (2013) on developing countries Garnero, Kampelmann, Rycx (2015) coverage & compliance in some EU MS

4 Factors that should influence compliance Complexity (no. of schedules, exemptions) Income / development level Institutional enforcement capacity

5 Factors that should influence compliance Complexity (no. of schedules, exemptions) In CEE national MWs should cover all dependent workers Income / development level Institutional enforcement capacity

6 Minimum wages rose in real terms since early 2000s Real MW growth ( )

7 Kaitz index, 2013 Diverse changes in minimum to average wage ratios 0.50 France Belgium 0.42 Netherlands Portugal 0.40 United Kingdom Poland Hungary 0.38 Latvia Ireland 0.36 Greece Slovak Republic 0.34 Spain Lithuania 0.32 Estonia Romania 0.30 Czech Republic Kaitz index, 2003

8 Three measures of violation (Bhorat, Kanbur, Mayet 2013) Incidence of violation Individual: v 0 = Overall: V 0 = 1 if w < wm 0 if w w m emp v 0 employment Depth of violation Individual: v 1 = wm w Overall: V 1 = w m v 0 emp v 1 employment ; share of underpaid workers ; depth of violation per worker Average shortfall V 1 /V 0 ; depth of violation per underpaid worker

9 EU-SILC data for (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

10 Non-compliance low to moderate; shortfall noticeable 8% 7% 6% 5% 4% 3% 2% 1% Average % 4 35% 3 25% 2 15% 1 5% Violaton incidence, V0 (left axis) Average wage shortfall per underpaid worker, V1/V0 (right axis)

11 Latvia, Poland, Slovenia increasing violation 7% 6% 5% 4% 3% 2% 1% Poland Violaton incidence, V0 (left axis) Average shortfall per undepaid worker, V1/V0 (right axis) 25% 2 15% 1 5%

12 Czech Republic, Estonia, Hungary decreasing violation 6% 5% 4% 3% 2% 1% Hungary Violaton incidence, V0 (left axis) Average shortfall per undepaid worker, V1/V0 (right axis) 2 15% 1 5%

13 Bulgaria, Lithuania, Romania, Slovakia violation rose in the crisis 12% 1 8% 6% 4% 2% Lithuania Violaton incidence, V0 (left axis) Average shortfall per undepaid worker, V1/V0 (right axis) 3 25% 2 15% 1 5%

14 Non-compliance via extra hours most common in Poland and Romania 8% 7% Average % 5% 4% 3% 2% 1% Bulgaria Czech Rep. Estonia Slovakia Slovenia Romania Hungary Latvia Poland Lithuania Monthly MW violation Hourly MW only violation Hourly MW violation

15 Violation usually deeper than non-compliance with the most recent hike 8% 7% Decomposition of monthly violation incidence (average ) 6% 5% 4% 3% 2% 1% Bulgaria Czech Rep. Slovakia Estonia Slovenia Romania Hungary Poland Latvia Lithuania Violation of only current year MW Violation of both current and previous year MW

16 medium high high-skilled (isco 1-3) clerks, service, sales (isco 4-5) skilled agricultural (isco 6) craft (isco 7) machine operators (isco 8) agriculture construction market services non-market services micro small below above 55 temporary female Odds of non-compliance higher for weaker workers education (ref. low) occupations (ref. elementary) sector (ref. industry) firm size (ref. 50 and more) age (ref ) Marginal effects. All presented coefficients significant at 1% level. Country dummies, and time trend included.

17 Violation incidence (V0) Positive relation between violation incidence and Kaitz index 12% Violation incidence (V0) vs. the Kaitz index: descriptive 1 8% 6% 4% y = x R² = % Kaitz index

18 Higher Kaitz and lower GNI associated with higher violation Monthly MW violation incidence (V0) vs. GNI per capita and Kaitz index: panel regression Between-effects Fixed-effects GNI per capita, PPP (in int. $k) *** Kaitz index *** Constant *** R countries, 85 observations

19 Main findings from panel regressions Kaitz index non-compliance in all specifications Higher trade union density and bargaining coverage associated with higher incidence of compliance (Kaitz index controlled for) No relationship between average shortfall and Kaitz index or GNI

20 Conclusions MW violation in CEE low to moderate but happens also via hours Higher MW associated with higher incidence of violation but non-compliance usually goes beyond most recent hike Weaker workers more likely to be affected Balance needed between MW level, violation risk & enforcement costs Easy & anonymous reporting plus automatic fines for repeated breaches

21 Thank you for your attention Piotr Lewandowski