Impact of Minimum Wage and Government Ideology on Unemployment Rates: The Case of Post-Communist Romania
International Journal of Humanities and Social Science, Vol. 2, No. 1, 2012
10 Pages Posted: 21 Nov 2012
Date Written: January 10, 2012
The present paper fills a gap in economic literature by analyzing the relationship between unemployment rates and minimum wage levels in Romania between 1994-2007. The hypothesis tested is that this relationship is nonlinear, with government ideology playing an integral part in determining the unemployment rate through an interaction term. The method of analysis is a time series regression tested with a two-period lag used to eliminate possible endogeneity. Finally, the model is tested for robustness using a 2-lag VAR and a first difference regression. The results appear robust and the evidence seems to point towards a statistically significant non-linear relationship between unemployment and minimum wages. Finally, additional limitations and avenues for expanding the model are suggested.
Keywords: unemployment, political ideology, labor markets, time series, political economy, Romania
JEL Classification: C22, E24, E69, J68, P16
Suggested Citation: Suggested Citation