The Effects of the Minimum Wage in Czechoslovakia : Simulation of a Macroeconometric Model

The effects of the minimum wage on employment in Western economies are relatively uncontroversial. The introduction of a minimum wage in Czechoslovakia at the start of the transition, and its increase one year later, gives the opportunity to evaluate to what extent its effects on employment seem to have been comparable to those known for market economies. In order to go further than the measure of direct effects on employment, estimates and simulates a small‐scale macro‐econometric model over the period February 1991 to September 1992, which takes into account the feedback effects of the direct change in employment through other macroeconomic variables. These feedback effects seem to accentuate the increase in the level of employment generated by a fall in the minimum wage by two‐thirds after a term.