Wage and employment impact of minimum wage: evidence from Lithuania

Goldin (2014, AER) argues that societies have made a remarkable progress in closing the wage and employment gaps in the last fifty years; yet, they have failed to achieve full labor market equality. Goldin boils down the remaining difference to the concept of time flexibility, which should be understood both from employee and the employer perspectives. For example, primary care givers have lower time endowment to allocate to market work. By the same token, groups disadvantaged due to remote location, disability etc. may be at disadvantage when compared to workers without such handicaps. While the conjecture of Goldin is attractive, empirical evidence is scarce and at times contradictory. In this project, we provide a battery of tests Goldin’s conjecture, analyzing the role of working time flexibility in determining wages and employment.

First, from an employee perspective, we hypothesize that demand for flexibility varies at different stages of the life-cycle. If the demand for flexibility indeed drives the (adjusted) wage gaps, then one expect a life-cycle pattern in adjusted wage gaps. In the absence of flexible arrangements, the demand for flexibility might also be reflected in more selective employment patterns. This hypothesis will be tested empirically, with the use of a novel proposed estimation method, which allows to isolate age, cohort and time effects in adjusted wage gaps. The study will be done for a wide variety of countries. Second, also taking the employee perspective, we will infer the true value of working time flexibility to workers. Non-standard work arrangements allow to engage in other spheres of life, but in many societies carry a social stigma. We will propose a large-scale framed field experiment to infer the true value of working time flexibility among workers, controlling for their outside options and household situation.

Third, from an employer perspective, we formulate the hypothesis that managers from a disadvantaged group will not tolerate high wage penalty on time inflexibility among their subordinates. To this end, we will develop and utilize a novel dataset on female managers across Europe and industry-level adjusted gender wage gaps (as well as their between firm dispersion). We will provide a variety of identification strategies to inspect the causality in this relationship.

Fourth, from a household perspective, taxes and social transfers may disproportionally tax the second earner’s labor supply, thus making it disadvantageous to supply labor. So may the childcare costs. We will extend a standard tax-benefit microsimulation model to account for the latter for a selection of the European countries, thus obtaining a shadow price of working time flexibility across countries. Finally, fifth, we will analyze the links between the supply of flexible work agreements and labor market inequality. We will explore ways flexible working arrangements influence labor market inequality across the EU, including selective patterns of employment, changes in within gender inequality and assortative mating.

The project contributes to the literature in three respects. First, we provide a wide battery of tests to an important hypothesis concerning the origins of labor market inequality in a wide, comparative context across countries. Second, we provide several methodological innovations (concerning estimation techniques and identification strategies) as well as methodological diversity (econometrics, simulations and experiments). Third, we will separate the role of the supply side factors (on the side of the employers) from demand side factors (the working time flexibility to combine personal and professional life).

The benefits of international cooperation are threefold. First, the teams complement each other in terms of skills, which permits pushing the frontier of research. Second, given the international composition of the team, the comparative economics angle can be based on local expertise on top of being data driven. Third, the capacity building for both partners will permit broader reach of this and future research in the field, thus contributing to the internationalization of Polish and Lithuanian science in our field.