Labor and demographic economics

To Leave the Shadows: What the Cabinet`s Decision to Increase Minimal Wage Will Cause

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Volodymyr Dubrovsky, CASE Ukraine Center for Social and Economic Research`s economist, commented to the ‘Apostrophe‘ media outlet on the government’s plans to raise the minimum wage up to 3200 UAH. In particular, minimum wage raising may have a completely opposite effect.‘You need to look at how this proposal is formulated. As far as I understand, it’s all about unbinding minimum wage from the schedule of charges. It turns out that public sector wages are not automatically increased. If so, this solution is developed not so much to increase the people`s minimum wages as to legalize the money that should be directed to single social payment and income taxes, because a person who pays the salary in an ‘envelope’ will have to show a minimum wage or propose employees to go to part-time job.
On the other hand, it will be less easy to get help and subsidies for people that usually pretend to be poor, because they will be associated with a not so small minimum wage. As a result, many of them will not qualify for aid.

I understand that this is done in order to increase budget revenues and reduce the cost of subsidies. But, in general, I suspect that it will cause to other effects in reality. Some people, which now are getting less money than this minimum wage is, maybe will get even more. If employers will find a way to pay them more. But some of these people either will be fired or transferred to fully ‘shadow’ employment, because no one has funds for that. What will be the resulting effect relating to the budget? It`s possible, that negative one’.

October 27, 2016