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The Employment Effect of an Increase in the Swedish Minimum Wage: an Empirical Study of the 2005 Wage Agreement Between Skl and Kommunal

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The Employment Effect of an Increase in the Swedish Minimum Wage: an Empirical Study of the 2005 Wage Agreement Between Skl and Kommunal
Tutor: Juanna Schrøter Joensen Examinator: Örjan Sjöberg

The Employment Effect of an Increase in the Swedish Minimum Wage
An empirical study of the 2005 wage agreement between SKL and Kommunal

Mikolaj Gruszczynski♣

Paula Roth♦

Bachelor’s Thesis, Stockholm School of Economics, Department of Economics June 16, 2010

Abstract
This thesis investigates the relationship between a minimum wage increase and change in employment for municipality workers in Sweden between 2003 and 2007. The effect is estimated by performing a natural experiment comparing a treatment group of workers affected by the increase to a control group of unaffected workers. The results identify a positive effect for the aggregate employment levels after the minimum wage was raised in April 2006. The effects are stronger in the larger municipalities while almost zero for the smallest quartile of municipalities. Overall our results contribute to the recent studies challenging the neoclassical models and their view of the labour market, emphasizing the complexity in foreseeing the effect of minimum wages. Keywords: Minimum wage, employment effect, public sector, municipality

♣

21223@student.hhs.se

♦ 21360@student.hhs.se

Acknowledgments
We would like to express our deep gratitude to our tutor Juanna Joensen for her invaluable insights, econometric expertise and timely assistance. We also owe great thanks to Madeleine Eckervig at SKL for compiling the data which form the foundation of this thesis. Furthermore we are indebted to Klas Roth for thoughtful comments, Karin Ehlin Kolk for her expertise on trade unions and to Henning Göranson Sandberg for indispensable proofreading. Finally we thank Eva Ranehill for inspiring guidance.

2

List of Contents
Acknowledgments ........................................................................................................................................ 2 1 Introduction


References: 12 the other hand, if reservation wages are thought of as varying across the workforce (Zavodny, 1998) an increase in minimum wages could increase the level of employment since more workers will be offered a wage higher than their reservation wage Zavodny (1998) quotes an American restaurant owner: “Our employees are our customers.” (Wall Street Journal, November 20, 1996.) 8
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