Facts and Analysis. How Do Minimum Wage Increases Affect Companies?

In the years 2012 through 2014, the monthly minimum wage in Lithuania was increased three times, from 231.70 EUR (800 LTL) in 2012 to 299.76 EUR (1,035 LTL) in 2014 and there are new plans for another increase in 2015. However, there has been a lack of research on the consequences of increasing the minimum wage for Lithuania’s companies.

The Lithuanian Free Market Institute (LFMI) conducted a corporate survey and four case studies of Lithuanian enterprises to analyse the impact and implications of increases in the minimum wage on the business sector. A total of 181 small and medium-sized enterprises were surveyed in order to find out how they were affected by the recent increases in the minimum wage and what implications a future increase might involve.

The results of the survey show that not all companies are in a position to increase the minimum wage and that the increases in 2012 and 2013 negatively affected every third surveyed company. Reportedly, a planned increase in the minimum wage by 58 EUR (200 LTL) will negatively affect 48% of enterprises and in order to balance wage costs, companies would be forced to undertake a number of undesirable measures: 29% of companies would cut jobs, 30% would reduce working hours and 19% would lower wages for those who earn more than the minimum wage.

LFMI also carried out four case studies of the surveyed companies in order to show the effects of an increase in the minimum wage on specific enterprises. Case studies show that increases in the minimum wage lead to job cuts, boost consumer prices and dissolve the wage differences between qualified and low-skilled workers. Also, they have a negative impact on enterprises regardless of their financial position and force companies with many minimum-wage earners to cease business activities.

Download the company survey (in English) Facts and Analysis. How do minimum wage increases affect companies? and (in Lithuanian)  Faktai ir analizė. Kaip MMA didinimas paveikia įmones? (I)

Download the case studies (in Lithuanian) Faktai ir analizė. Kaip MMA didinimas paveikia įmones? (II)