Long-term responses to large minimum wage shocks: Subminimum and super-minimum workers in Slovenia

Abstract

This study examines long-term effects of a large minimum wage increase in Slovenia, covering the universe of employed and unemployed workers. By distinguishing subminimum and super-minimum workers, we find large, persistent disemployment effects for the subminimum group whose productivity fell below the rising minimum wage, both due to lower probability of remaining employed and of finding a job if non-employed. The shock to firm wage bills caused by the minimum wage creates a substitution toward workers whose marginal revenue products are slightly above the minimum wage, but the most skilled are complements with the subminimum workers in their firm.