Minimum Wage Violation in Central and Eastern Europe

Minimum wages continue to be at the centre of the policy debates in both developed and emerging economies. Such policies can only be effective if (1) the existing regulatory system does not have gaps that allow for the payment of wages below the minimum wage, and (2) the existing minimum wage laws are not violated (too often). In this paper we analyse minimum wage violations in 10 Central and Eastern European countries that have joined the EU since 2004, and that have statutory national minimum wages. Utilising EU-SILC data, we use the methodology proposed by Bhorat et al. (2013) to analyse both the incidence of minimum wage violations, as well as the monetary depth of these violations. We find that on average in 2003-2012, the estimated incidence of violations ranged from 1.0% in Bulgaria, to 1.3% in the Czech Republic, around 3% in Romania and Slovenia, 4.7% in Poland and Hungary, 5.6% in Latvia, and 6.9% in Lithuania. The average pay shortfall ranged from 13.7% of the country-year specific minimum wage in Estonia, to 41.7% in Slovenia. In all countries, workers who were female, less-educated, in the service or agricultural sector, in a micro firm, or with a temporary contract were more likely than other categories of workers to earn less than the minimum wage they were entitled to. While higher minimum to average wage ratios were associated with higher levels of non-compliance, this effect was present within countries over time, but not between them

Portraits of Labor Marker Exclusion 2.0 : Country Policy Paper for Poland

This is a joint study between the European Commission (EC), the World Bank, and the Organization for Economic Cooperation and Development (OECD), which aims to inform employment support, activation, and social inclusion policy making, through an improved understanding of labor-market barriers

How (not) to make women work?

Women in developed economies have experienced an unparalleled increase in employment rates, to the point that the gap with respect to men was cut in half. This positive trend has often been attributed to changes in the opportunity costs of working (e.g. access to caring facilities) and the opportunity costs of not-working (notably, relative growth in wages in positions more frequently occupied by women, improved educational attainment). Meanwhile, the gender employment gaps were stagnant in transition economies. Admittedly, employment equality among genders was initially much higher in transition countries. We exploit this unique evidence from transition and advanced countries, to analyze the relationship between the institutional environment and the (adjusted) gender employment gaps. We estimate comparable gender employment gaps on nearly 1500 micro databases from over 40 countries. Changes in both types of the opportunity costs exhibited strong correlation with gender employment equality where the gap was larger, i.e. advanced economies. We provide some evidence that these results are not explained away by transition-related phenomena. We argue that the observed divergence in time trends reflects a level effect: the lower the gender employment gap, the lower the strength of the relationship between gender employment equality and the opportunity costs of working. An implication from our study is that the existing instruments might be insufficient to further reduce the gender employment gap

How (Not) to Make Women Work?

Women in developed economies have experienced an unparalleled increase in employment rates, to the point that the gap with respect to men was cut in half. This positive trend has often been attributed to changes in the opportunity costs of working (e.g. access to caring facilities) and the opportunity costs of not-working (notably, relative growth in wages in positions more frequently occupied by women, improved educational attainment). Meanwhile, the gender employment gaps were stagnant in transition economies. Admittedly, employment equality among genders was initially much higher in transition countries. We exploit this unique evidence from transition and advanced countries, to analyze the relationship between the institutional environment and the (adjusted) gender employment gaps. We estimate comparable gender employment gaps on nearly 1500 micro databases from over 40 countries. Changes in both types of the opportunity costs exhibited strong correlation with gender employment equality where the gap was larger, i.e. advanced economies. We provide some evidence that these results are not explained away by transition-related phenomena. We argue that the ob-served divergence in time trends reflects a level effect: the lower the gender employment gap, the lower the strength of the relationship between gender employment equality and the opportunity costs of working. An implication from our study is that the existing instruments might be insufficient to further reduce the gender employment gap

How rankings disguise gender inequality: A comparative analysis of cross-country gender equality rankings based on adjusted wage gaps.

Methods for estimating the scope of unjustified inequality differ in their sensitivity to address institutional and structural deficiencies. In the case of gender wage gaps, adjusting adequately for individual characteristics requires prior assessment of several important deficiencies, primarily whether a given labor market is characterized by gendered selection into employment, gendered segmentation and whether these mechanisms differ along the distribution of wages. Given that countries are characterized by differentiated prevalence of these deficiencies, ranking countries on gender wage gaps is a challenging task. Whether a country is perceived as more equal than others depends on the interaction between the method of adjusting gender wage gap for individual characteristics and the prevalence of these deficiencies. We make the case that this interaction is empirically relevant by comparing the country rankings for the adjusted gender wage gap among 23 EU countries. In this relatively homogeneous group of countries, the interaction between method and underlying deficiencies leads to substantial variation in the extent of unjustified inequality. A country may change its place in the ranking by as much as ten positions-both towards greater equality and towards greater inequality. We also show that, if explored properly, this variability can yield valuable policy insights: changes in the ranking positions across methods inform on the policy priority of the labor market deficiencies across countries in relative terms

Redistribution via VAT and cash transfers: An assessment in four low and middle income countries

As in high-income countries, reduced rates of VAT and VAT exemptions ("preferential VAT rates") are a common feature of indirect tax systems in LMICs. Many of the goods and services that are granted preferential rates - such as foodstuffs and kerosene - seem likely to receive such treatment on the grounds that they provide a means for the government to indirectly target poorer households, for whom such expenditures may take up a large proportion of their total budget. We use microsimulation methods to estimate the impact of preferential VAT rates in four LMIC countries, considering their effect on revenues, poverty, inequality, and across the consumption distribution. We consider whether other policy tools might be better suited for the pursuit of distributional objectives by estimating the impact of existing cash transfer schemes and a hypothetical scenario where the revenue raised from broadening the VAT base is used to fund a Universal Basic Income (UBI) in each country. We find that although preferential VAT rates reduce poverty, they are not well targeted towards poor households overall. Existing cash transfer schemes are better targeted but would not provide a suitable means of compensation for a broader VAT base given issues related to coverage and targeting mechanisms. Despite being completely untargeted, a UBI funded by the revenue gains from a broader VAT base would create large net gains for poor households and reduce inequality and most measures of extreme poverty in each of the countries studied - even if only 75% of the additional VAT revenue was disbursed as UBI payments. This is the first draft of a paper examining the distributional impacts of VAT exemptions and reduced rates and direct cash (and near-cash) transfer schemes in a series of low and middle income (LMIC) countries. All results presented are preliminary; it is being shared in order to elicit comments and provide early sight of findings we consider robust