The economic effects of the minimum wage in Slovenia

Abstract

In March 2010, Slovenia increased the statutory minimum wage from 597 to 734 euros gross per month, or by 22.9%. The magnitude of this increase strongly exceeded that of previous minimum wage adjustments following the introduction of a minimum wage in 1995 and of minimum wage increases in other CEE countries. This chapter aims to present the developments of minimum-wage policy in Slovenia, compare Slovenian minimum-wage policy to other EU countries, and present the empirical results of the effects of the 2010 minimum wage increase on labour market outcomes, wage distribution, and operation of firms. Empirical results, based on the administrative data covering the entire Slovenian workforce, show that with the 2010 minimum wage increase the number of minimum wage recipients almost doubled. Furthermore, we find large and persistent disemployment effects on low-paid workers and a substitution towards more productive workers. The minimum wage increases also remarkably contributed to the increase of the concentration of workers paid at the minimum wage and produced sizable spillover effects (i.e., the increase resulted in the growth of wages, at a strictly diminishing rate, of workers higher up in the wage distribution). Regarding firms, results show that firms experiencing larger minimum wage shocks had lower rates of return.