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The Minimum Wage Fuels Romania’s Shadow Economy?

  • Adriana Ana Maria Davidescu
  • Friedrich Schneider
Chapter
Part of the Contributions to Management Science book series (MANAGEMENT SC.)

Abstract

The recent increases in the minimum wage in Romania represent a popular topic at the national level, which indicated that aggressive increases in the minimum wage could create a competitiveness problem in the context of a relatively high level of informal economic activities. The main objective of this chapter is to measure the effects of the minimum wage on Romanian informal activities based on the sharp increases in the minimum wage observed in the recent periods and the new increase planned by the government in the future using quarterly data for the period 2000–2015. The size of the SE was estimated using the MIMIC model, and the empirical results reveal that unemployment, self-employment, indirect taxation and lack of trust in government can be considered causes of Romanian informality. The empirical results indicate that an increase in the minimum wage can be considered a longterm supporting factor for the shadow economy because it increases informal economic activities, as firms will seek alternative methods of circumventing authorities.

Notes

Acknowledgements

We are grateful to the National Scientific Research Institute for Labour and Social Protection Romania for funding the empirical research within the project PN 16440102 entitled “The impact of labour market institutions on informality. Micro and macro approaches”.

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Further Reading

  1. Earnings Database, EurostatGoogle Scholar
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  5. Ministerul Muncii. www.mmuncii.ro
  6. Monthly Bulletins of National Bank of Romania, 2000–2015. www.bnr.ro
  7. Quarterly Government Finance Statistics database, EurostatGoogle Scholar
  8. Quarterly Labor Force Survey database, EurostatGoogle Scholar
  9. Quarterly Monetary and Financial Statistics database, EurostatGoogle Scholar
  10. Quarterly National Accounts database, EurostatGoogle Scholar
  11. Stata 13 softwareGoogle Scholar
  12. Tempo database, National Institute of StatisticsGoogle Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  • Adriana Ana Maria Davidescu
    • 1
    • 2
  • Friedrich Schneider
    • 3
  1. 1.Department of Statistics and EconometricsBucharest University of Economic StudiesBucharestRomania
  2. 2.Department of Labour Market PoliciesNational Scientific Research Institute for Labour and Social ProtectionBucharestRomania
  3. 3.Johannes Kepler University of LinzLinzAustria

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