How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe

Publication by Nataša T. Jemec ’09 (Economics) and Ludmila Fadejeva ’11 (Macro)

Nataša Todorović Jemec ’09 (Economics) and Ludmila Fadejeva ’11 (Macroeconomic Policy and Financial Markets) have published a paper in the IZA Journal of Labour Policy, together with a few other colleagues from central banks of new EU member states. The paper, “How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe,” studies the transmission channels for rises in the minimum wage using a unique firm-level dataset from eight Central and Eastern European countries.

They wrote the publication within the ECB Wage Dynamics Network (WDN). At the time, Nataša and Ludmila were working at the Central Bank of Slovenia and the Central Bank of Latvia respectively, and they were their banks’ representatives in the WDN. Increase of the minimum wage was a common topic of many new EU members, and they decided to write a paper on that based on the data that they collected through a WDN survey in their countries.

Researchers can use this form to request access to the data of the WDN network which includes many EU countries.

Paper abstract

We study the transmission channels for rises in the minimum wage using a unique firm-level dataset from eight Central and Eastern European countries. Representative samples of firms in each country were asked to evaluate the relevance of a wide range of adjustment channels following specific instances of rises in the minimum wage during the recent post-crisis period. The paper adds to the rest of literature by presenting the reactions of firms as a combination of strategies and evaluates the relative importance of those strategies. Our findings suggest that the most popular adjustment channels are cuts in non-labour costs, rises in product prices, and improvements in productivity. Cuts in employment are less popular and occur mostly through reduced hiring rather than direct layoffs. Our study also provides evidence of potential spillover effects that rises in the minimum wage can have on firms without minimum wage workers.

About the authors

Nataša T. Jemec ’09 is a Senior Economist at IMAD. She is an alum of the Barcelona GSE Master’s in Economics.

Ludmila Fadejeva ’11 is a Senior Econometrician at the Bank of Latvia. She is an alum of the Barcelona GSE Master’s in Macroeconomic Policy and Financial Markets.

Bank Assets, Liquidity and Credit Cycles

Forthcoming publication by Federico Lubello ’12 (Economics)

My paper, “Bank Assets, Liquidity and Credit Cycles” with Ivan Petrella (Warwick and CEPR) and Emiliano Santoro (University of Copenhagen) has been accepted at the Journal of Economic Dynamics and Control. In the paper, we uncover a close connection between the collateralization of bank loans, macroeconomic amplification and the degree of procyclicality of bank leverage.


We study how bank collateral assets and their pledgeability affect the amplitude of credit cycles. To this end, we develop a tractable model where bankers intermediate funds between savers and borrowers. If bankers default, savers acquire the right to liquidate bankers’ assets. However, due to the vertically integrated structure of our credit economy, savers anticipate that liquidating financial assets (i.e., loans) is conditional on borrowers being solvent on their debt obligations. This friction limits the collateralization of bankers’ financial assets beyond that of real assets (i.e., capital). In this context, increasing the pledgeability of financial assets eases more credit and reduces the spread between the loan and the deposit rate, thus attenuating capital misallocation as it typically emerges in credit economies à la Kiyotaki and Moore (1997). We uncover a close connection between the collateralization of bank loans, macroeconomic amplification and the degree of procyclicality of bank leverage.

Federico Lubello ’12 is a Research Economist at Banque centrale du Luxembourg. He is an alum of the Barcelona GSE Master’s in Economics.


City Design, Planning, Policy Innovations: The Case of Hermosillo

IDB publication co-authored by Miguel Angel Santos (ITFD ’11, Economics ’12)

credit: IDB

After a lengthy review process we are proud to announce that our book “City Design, Planning, Policy Innovations: The Case of Hermosillo” is published and available for download from the Inter-American Development Bank. Cutting edge research on cities featuring my work with Douglas Barrios, my colleague at the Center for International Development’s Growth Lab at the Harvard Kennedy School. Thanks to Andreina Seijas and Diego Arcia for the superb coordination and editing work.

About the book

This publication summarizes the outcomes and lessons learned from the Fall 2017 course titled “Emergent Urbanism: Planning and Design Visions for the City of Hermosillo, Mexico” (ADV-9146). Taught by professors Diane Davis and Felipe Vera, this course asked a group of 12 students to design a set of projects that could lay the groundwork for a sustainable future for the city of Hermosillo—an emerging city located in northwest Mexico and the capital of the state of Sonora. Part of a larger initiative funded by the Inter-American Development Bank and the North-American Development Bank in partnership with Harvard University, ideas developed for this class were the product of collaboration between faculty and students at the Graduate School of Design, the Kennedy School’s Center for International Development and the T.H. Chan School of Public Health.

Miguel Angel Santos (ITFD ’11, Economics ’12) is Director of Applied Research at the Growth Lab at Harvard Kennedy School.

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The Zero Lower Bound was irrelevant

Blog post for AIER by Brian C. Albrecht ’14 (Economics of Public Policy)

empty building floor

Brian Albrecht is a PhD candidate at the University of Minnesota and a graduate of the Barcelona GSE Master’s Program in Economics of Public Policy, as well as a past editor of the Barcelona GSE Voice. He is also a contributor to the Sound Money Project, a blog from the American Institute for Economic Research (AIER).

In a recent post, Brian talks about a recent paper by Barcelona GSE professors Davide Debortoli, Jordi Galí, and Luca Gambetti, “On the Empirical (Ir)Relevance of the Zero Lower Bound Constraint.” He writes:

Many economics writers, including Ben BernankeNeil Irwin, and Justin Wolfers, worry that the Fed will not be able to combat the next recession. Current interest rates, the sad story goes, are already close to zero. Since a downturn will push the economy to the zero lower bound (ZLB), the Fed will not be able to lower rates further, thereby prolonging the recession.

Of course, for such a story to make sense, the ZLB must be a fundamental constraint that inhibits monetary policy. In a new NBER working paper, Davide Debortoli, Jordi Galí, and Luca Gambetti consider whether the ZLB was actually the problem during the last recession. They say the ZLB was irrelevant. The authors come to this conclusion by studying two types of evidence: measures of macro volatility, and the response of macro variables to aggregate shocks through a vector autoregression.

Brian C. Albrecht for Sound Money

Read Brian’s full post on this paper and find a list of all his recent posts over on the AIER website.


Brian C. Albrecht ’14 is a PhD candidate in Economics at the University of Minnesota. He is an alum of the Barcelona GSE Master’s in Economics of Public Policy.

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Asymmetric Social Distance Effects in the Ultimatum Game

Publication by Orestis Vravosinos ’18 (Economics) with Kyriakos Konstantinou

The Ultimatum Game Comic
Comic author: Zach Weinersmith

A paper by Orestis Vravosinos (Economics ’18, UPF MRes in Economics ’19) and Kyriakos Konstantinou (LSE) has just been published in the Review of Behavioral Economics. Below is an overview of the paper.

The Ultimatum Game

Given that in experiments ultimatum game outcomes are often significantly different from Nash equilibrium predictions under standard assumptions on preferences, many studies have examined the impact of fairness on players’ considerations and how the effect of the sense of fairness on players’ actions may vary, while other factors change. It has been argued that increased stakes (larger sum of money distributed) can reduce sensitivity to fairness of player 2 making it more likely that she accepts lower shares of the total sum, thus, giving player 1 the opportunity to offer a lower share.

Social Distance

Social distance has also been found to affect fairness. In the existing literature, social distance commonly varies only from players being close relatives or friends to complete strangers, even though negatively-valenced relationships can be important from an economic point of view. Our study aims to fill this gap by introducing negatively-valenced relationships between the players. We argue that altruistic and empathetic behavior of the proposer towards the responder may not vary (increase) as significantly in the region of negative relationships compared to the region of positive relationships. Similarly, social distance effects stemming from reciprocity may vary less in the region of negative relationships. Thus, we hypothesize that in the ultimatum game social distance effects are asymmetric with their magnitude varying more in the spectrum of positively compared to negatively-valenced relationships.

Our experimental results support this hypothesis; in the region of positively-valenced relationships, the proposers increase the percentage they offer as relationship quality increases more drastically compared to when the relationship is negatively-valenced, in which case they appear more invariant to relationship effects. Also, by eliciting a minimum share which the responder is willing to accept out of the total sum, we provide clearer results on the social distance and stakes effects on the latter’s behavior. Last, we find a negative effect of relationship quality on the minimum acceptable share. This contradicts a strand of the literature which suggests that closer-“in-group” individuals may be punished more severely, so that cooperation in a group is maintained.


Orestis Vravosinos and Kyriakos Konstantinou (2019), “Asymmetric Social Distance Effects in the Ultimatum Game”, Review of Behavioral Economics: Vol. 6: No. 2, pp 159-192.

Orestis Vravosinos

Orestis Vravosinos ’18 is an MRes student at GPEFM (UPF and Barcelona GSE). He is an alum of the Barcelona GSE Master’s in Economics.

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The Transition to the Knowledge Economy, Labor Market Institutions, and Income Inequality in Advanced Democracies

Publication by Angelo Martelli ’11 (Economics)

Angelo Martelli '11

Hot off the press! My publication “The Transition to the Knowledge Economy, Labor Market Institutions, and Income Inequality in Advanced Democracies” with David Hope (King’s College) is finally out in World Politics.

A good read for all those interested in understanding the extent to which the relationship between the changing nature of work and income inequality is influenced by national labor market institutions.

Paper abstract

Recent work in comparative political economy has found that labour market institutions can mitigate the inequality-enhancing effects of the transition to the knowledge economy (Hope and Martelli 2019). While this work enhances our understanding of the role and importance of labour market institutions in the post-industrial era, it cannot tell us much about the underlying mechanisms. This paper aims to fill that gap in the literature by undertaking a micro-level econometric study on Denmark using a unique longitudinal dataset with linked employer-employee data, the Integrated Database for Labour Market Research (IDA). The central analysis in the paper will explore the influence of union membership and collective bargaining on within and between firm inequality in knowledge-intensive sectors. It will also test competing hypotheses as to why labour market institutions have been able to damp down the effects of the transition to the knowledge economy on income inequality.

A couple of takeaways

The transition to the knowledge economy began in earnest after the crisis of Fordism in the 1970s. Figure 1 (below) shows the employment expansion in knowledge-intensive service sectors, such as finance, insurance, business services, and telecommunications, between 1970 and 2006. Growth of knowledge employment was ubiquitous in the advanced democracies over this period; the average employment expansion was close to nine percentage points. The rise of the knowledge economy is clearly demonstrated by this substantial shift in economic structure away from traditional industries and toward ICT-intensive service sectors.

figure 1

Figure 2 (below) shows that for the income share of the top 1 percent, an increase in knowledge employment is associated with an increase in inequality when wage coordination and collective bargaining coverage are very weak, but has little or no effect when they’re at their highest levels.

figure 2

You can read more about this research in a blog post I wrote with my coauthor based on a previous version of the paper on LSE’s European Politics and Policy blog (EUROPP).

Next we are planning to work on A Micro-Level Study of the Knowledge Economy, Institutions, and Income Inequality.


Angelo Martelli ’11 is a Postdoctoral Research Fellow at LSE. He is an alum of the Barcelona GSE Master’s in Economics.

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Green Public Procurement as a Leverage for Sustainable Development: Documental Analysis of 80 Practices in European Union

Book chapter by Daniele Alimonti ’16 (Economics of Public Policy)

book cover

While working as a research assistant at the Barcelona GSE, Daniele Alimonti ’16 (Economics of Public Policy) co-authored this chapter of the book “Green Public Procurement Strategies for Environmental Sustainability” curated by Rajesh Kumar Shakya (The World Bank, USA) and published by IGI Global. His co-authors are professors and researchers from Tor Vergata University in Rome, Italy.

Daniele shares this summary of the article:

The article aims to highlight the advantages of Green Public Procurement (GPP) practices to address the environmental and economic problems during the different stages of the tendering procedure. Laying on the experiences of the European countries, the research has the objective to reconstruct the state of the art of green public procurement through the lens of a cross-country comparative analysis. After introducing a systematic review of the literature and the core regulations of the GPP practice, the article underlines the results of a multidimensional analysis on a cluster of 80 practices, identified by the European Union and implemented by governments in 25 countries at a central, regional, or local government level. The framework of the analysis builds on several dimensions, mapping the main results on the following levels: geographic origin, government level, implementation period, main criteria used for implementation, as well as environmental and economic impact of such practices.

Daniele Alimonti is currently a research analyst at the Institute for Political Economy and Governance (IPEG) in Barcelona.

About the Barcelona GSE Master’s Program in Economics of Public Policy

Unlucky Cohorts: Estimating the Long-Term Effects of Entering the Labor Market in a Recession in Large Cross-Sectional Data Sets

A new publication by Hannes Schwandt (GPEFM ’12) in the Journal of Labor Economics

Hannes Schwandt (GPEFM ’12) is Assistant Professor of Economics at Northwestern University’s School of Education and Social Policy, currently visiting Stanford University’s Institute for Economic Policy Research (SIEPR). His paper, “Unlucky Cohorts: Estimating the Long-term Effects of Entering the Labor Market in a Recession in Large Cross-sectional Data Sets” (with Till von Wachter) has just been published in the January 2019 issue of the Journal of Labor Economics. The paper has garnered attention from major media outlets including The Economist and The Financial Times.


This paper studies the differential persistent effects of initial economic conditions for labor market entrants in the United States from 1976 to 2015 by education, gender, and race using labor force survey data. We find persistent earnings and wage reductions, especially for less advantaged entrants, that increases in government support only partly offset. We confirm that the results are unaffected by selective migration and labor market entry by also using a double-weighted average unemployment rate at labor market entry for each birth cohort and state-of-birth cell based on average state migration rates and average cohort education rates from census data.

Media attention

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