DURING TIMES OF CRISIS, AN INCREASE IN THE MINIMUM WAGE WILL LEAD TO HIGHER UNEMPLOYMENT RATES

Regarding the debates over the recent months related to the change of the administratively determined minimum wage (MW) and its impact on employment, BIA presents а regression analysis. It assesses the effect of a minimum wage change on the unemployment rate for 2000 - 2020.

The main conclusion we draw based on publicly available data is that:

during a decline (recession, crisis) of the business cycle, the increase in the minimum wage leads to a rise in unemployment.

The analysis has an explanatory power of 80% and was performed using professional statistical software (STATA). We also used three additional control analyses with other related determinants to confirm the results.

Currently, and in the medium term, the Bulgarian economy is entering a period of decline. GDP is below its potential, and there are some positive trends. This is mainly due to the budget-driven push rather than the economy's viability. The NSI reported only 0.4% GDP growth for the third quarter of 2021 compared to an average of 3.9% for the EU (NSI, 2021). In this situation of a downward phase for the business cycle of the Bulgarian economy, an excessive increase in the minimum wage will lead to a rise in unemployment, as the econometric analysis shows.

We once again emphasize BIA's position that:

The minimum wage is a function of the effect (benefits) of the work done. Therefore, the main factor for its increase should be the increase of labour productivity in the respective industries, measured by the gross indicator value added per employee.

The minimum wage cannot and should not serve to solve social problems, incl. poverty and social exclusion.

After a serious impact assessment, decisions to update the minimum wage should not be taken under pressure.

In the long run, raising wages requires accelerating investment in high value-added sectors, increasing labour productivity, technological innovation and innovation, and decisive changes in the education and vocational training system.