ALTAX Center (Albanian Taxation Center) has prepared a presentation that highlights some of the concerning issues about the minimum wage in Albania and around. Because the minimum wage labor is a contributor to the cost of economy we tend to examine the no and yes regarding the increase of the minimum and to evaluate the effects of this policy. Real minimum wage has increased more than two times since 2000. We conclude that the increases in the minimum wage are a useful means of raising wages in the lower part of the wage distribution that has little or no effect on employment and hours. The purpose of the presentation of estimation is to have the attention of tax policy experts and analysts, as far as good also to attire the attention of group of interest and scholars. We aim to have opinions about this presentation. The calculation used in this document are based on INSTAT and Ministry of Finance Bulletins, and also in internal sources of ALTAX.

1. www.al-tax.org
Minimum wage increase and consume prices
1
Minimum wage increase and
consume prices
The discussion about increasing the minimum wage is specific in Albania
The document is available to the website www.al-tax.org
If you request and send questions to altax@consultant.com
ALTAX
Fiscal studies,
2016/05/03
www.al-tax.org
altax@constultant.com
Date 21.05.2016
Tirana, ALBANIA
ALTAX
ALBANIAN FISCAL STUDIES

2. www.al-tax.org
Minimum wage increase and consume prices
2
ALTAX
ALBANIAN FISCAL STUDIES
Minimum wage increase and consume prices
The discussion about increasing the minimum wage is specific in Albania
ALTax is an Albanian think - tank initiative aiming at a new approach to Albanian - European fiscal
and economic policy. The primary goal is to promote education in taxation, help and assist the
taxpayers and interested parties (students, field experts, civil servants) with the proper expertise.
On the other hand the cooperation with the academics and fiscal experts helps to expand and
create an comprehensive audience in help of increasing of fiscal capacities in Albania and Kosovo.
WE HELP YOU TO PAY TAXES. WE HELP YOU NOT TO PAY TIP IN TAXES!
www.al-tax.org
altax@constultant.com
May 2016
Tirana, Albania

3. www.al-tax.org
Minimum wage increase and consume prices
3
©
ALTAX
Fiscal Studies
May 2016
Preparation and distribution
A. GJOKUTAJ, Chairwomen
ALTAX Center
Minimum wage increase and consume prices
Abstract
ALTAX Center (Albanian Taxation Center) has prepared a presentation that highlights some of the
concerning issues about the minimum wage in Albania and around. Because the minimum wage
labor is a contributor to the cost of economy we tend to examine the no and yes regarding the
increase of the minimum and to evaluate the effects of this policy. Real minimum wage has
increased more than two times since 2000. We conclude that the increases in the minimum wage
are a useful means of raising wages in the lower part of the wage distribution that has little or no
effect on employment and hours.
The purpose of the presentation of estimation is to have the attention of tax policy experts and
analysts, as far as good also to attire the attention of group of interest and scholars. We aim to
have opinions about this presentation. The calculation used in this document are based on INSTAT
and Ministry of Finance Bulletins, and also in internal sources of ALTAX.
Keywords: minimum wage, Albania, employment, taxes, social contributions
This document is prepared by the ALTAX, in a series of thematic collections, with the aim to become into a
source of discussion for all concerned, or for use in tax policy function in the implementation of their practices.
The copyright is ©
ALTAX.
Anyone who will use the data from this document requires copyright mark as reference materials to be used.
The document is available to the website www.al-tax.org
If you request and send questions to altax@consultant.com

4. www.al-tax.org
Minimum wage increase and consume prices
4
Raising the minimum wage means a large amount of money flowing to one
specific group of people in the economy. And, given that it is not created any
new money, means that some other groups of people must have less money.
And if we make some simple calculation in order to ilustrate the arguments, we
can se that:
In 2015, the annually fund of wage in Albania it was at 1.8 – 2.1 billion
Euro, including the tax labour. Only 29% of that fund of wage belong to
the minimum wage category.
It is time that minimum wage should be increased, and maybe the effective time
to give effect in the consume and economy it is not in the peak but the
important it is not to be pushed more.
But, the raising of minimum wage also will change the national standard of
living. Even in Albania there’s no a minimum of standard of living, and this is
another issue, we are talking the non official standard of living.
Staff account for roughly half of a retailer’s costs and large companies will have
to stump up tens of millions of Leks to meet the living wage requirement.
There’s not really anywhere else the higher minimum wage can come from.
Other components of compensation can be reduced to finance the wage rise,
prices can rise, jobs can be cut or profits can fall. And if we’re honest about it
the service and commerce industry (where a lot of minimum wage work is
concentrated) is so competitive that profits aren’t all that great to begin with.
The changes of minimum wage should be the new reality, after years of national
debate about the need to raise pay so families can earn a living wage. According
to administration estimates, this would boost the wages of some 100 thousands
people. Supporters of these efforts note that women in particular are likely to
benefit significantly.

5. www.al-tax.org
Minimum wage increase and consume prices
5
So what happens when the minimum wage is increased?
Let’s see the situation of a client in a crabs market that has a middle-income
clientele. Market owners, facing a higher wage bill, would like to pass the costs
on to their customers. But their customers are people whose incomes have not
been affected much, if at all, by the higher minimum wage. So if prices at the
market go up, these people will buy less and the market will now lose some
profits. They may raise prices a bit, but not much. Whatever they do, the market
owners will have to, if the clients buy some of increased costs.
Now, with the increase of the minimum wage, firms that face higher costs
cannot maintain profits simply by raising prices regardless of demand for their
products. While the increase of the minimum wage will increase demand for
those products purchased by low-income people, it will not yield an equal
increase in demand for all products.
One important issue regarding to the increase of minimum wage it is how should
be increased?
Now, it is possible to still argue that it’s all a great idea anyway. A point of
reference should be the linkage between minimum wage and median wage.
The general view in the literature is that a minimum wage of more than 50% of
the median wage causes significant ill effects in terms of price rises and job
losses.
This increase in basic pay is “credit negative” for retailers, restaurants, hotels
and leisure companies because of the cost of increasing pay for the hundreds of
thousands of workers they employ, according to an analysis by credit rating
agency Moody’s.
The critics of increase argue that the real effects of minimum-wage increases are
negative: they will damage businesses, raise prices and will not be productive
for the working class, as they can lead to unemployment in exctractive industry

6. www.al-tax.org
Minimum wage increase and consume prices
6
that suffer from low prices internationally. Firms tend to respond to minimum
wage increases not by reducing production or employment, but by raising prices.
Prices will rise, but the working class incomes will rise more than the price rises
and they’ll still come out ahead. Overall, price increases are modest: For
example, a 10% increase in the minimum wage would increase food prices by no
more than 2% and overall prices by no more than 0.15%, significantly less than
the minimum-wage increase.
Beneath the political claims and efforts on both sides is a profound philosophical
debate between neoclassical economics with its emphasis on aggregate growth
and what is best for the market as a whole and progressive economics,
beginning with John Maynard Keynes, with an emphasis on shared prosperity
and fairness.
In the minimum-wage debate, much depends on framing and assumptions, as
well as one’s interpretation of the larger patterns of increasing wage inequality.
Although there is no doubt that inequality has risen in Albania (even not as in
industrialized countries) over the past decade, studies can be found to support
positions on both sides of the minimum-wage issue, and questions remain about
the precise relationship with inequality dynamics.
The efficacy of minimum wage policies as an antipoverty initiative depends on
which families benefit from the increased earnings attributable to minimum
wages and which families pay for these higher earnings. Employment impacts
experienced by low-wage workers are negligible and, therefore, these workers
do not pay. The consumers pay for the higher labor costs through imperceptible
increases in the prices of goods and services produced by low-wage labor.
Under this scenario, the minimum wage increase acts like a VAT in its effect on
consumer prices, a tax that is even more regressive than a typical VAT. With the
proceeds of this VAT collected to fund benefits, the increase in the minimum

7. www.al-tax.org
Minimum wage increase and consume prices
7
wage distributed these bulk of these benefits to one in four families nearly
evenly across the income distribution.
Far more poor families suffered reductions in resources than those who gained.
As many rich families gained as poor families. These income transfer properties
of the minimum wage document its considerable inefficiency as an antipoverty
policy. The distribution of those income gains and price changes is the wrong
way around for the poor to benefit on net.
The minimum wage is a useful tool if the government values redistribution
toward low wage workers, and this remains true in the presence of optimal
nonlinear taxes/transfers. However, under certain labor market conditions, it
may be better for the government to subsidize low-wage workers and keep the
minimum wage relatively low.
A small firm in a low-wage region might, for example, respond to an increase in
the minimum wage by having the owner pick up more hours herself and cut back
on an employee’s overtime hours. A large firm might likewise try to squeeze
more work out of its salaried managers and hire more part-time workers, to
avoid benefits obligations.
At the same time, because work has a social dimension and is not purely an
economic endeavor many employees might keep their jobs at the higher
mandated wages because of employer loyalty or trust, or the simple desire to
avoid the complications of restructuring business operations to account for fewer
workers.
The concept here is to distrust sweeping generalizations about what might result
from a minimum-wage increase within the national labor market as a whole.
For the minimum wage increases, even when the full higher labor costs are
passed through to food consumers, the price increases are small. Thus, it is
unlikely that higher food costs would fully offset the wage gains of minimum
wage workers.

8. www.al-tax.org
Minimum wage increase and consume prices
8
The current minimum wage and what proponents have been calling the non
official living wage are quite near to each other. But from that living wage,
should be told that social and health contributions take at least 11% every
month, meantime the minimum wage is untaxed because of exemption.
The discussion about increasing the minimum wage is specific in Albania,
because of the share of informality and evasion. One part of analysts discuss
about the issue of minimum wage without specific situation and the other part
takes the situation in consideration, but yet argue the need for the economy
sake to forget for one moment the informality.
The studies from World Bank show that informality in the labor market it is
around as of 48% of whole market, and this estimation is the biggest argument
to be confronted with the increase of minimum wage discussion.And since this
calculation is not estended at all workers, because of informality, there still exist
the big problem to be solved by government.
The introduction of a new minimum wage in an unregulated informal market
presents a unique opportunity to examine important issues around responses to
legal wage floors. Minimum wages do not have a negative wage effect in the
informal sector, but they could have a smaller wage effect than in the formal
sector, and that difference changes throughout the wage distribution.
Minimum wages have a positive and significant effect on formal sector wages
and have no significant effect on informal sector wages.
In the last two decades the increase of minimum wage in Albania it was done
based only in inflation rate, but in this moment this is not a good reference,
since the inflation is not changed for almos 4-5 last years.
Minimum wage increases in real terms has been too low between 2000 and 2015
in order to provoke overall negative employment effects. Employers have used
adjustment channels other than employment to deal with the increase in labor
costs.

9. www.al-tax.org
Minimum wage increase and consume prices
9
When the full cost of a minimum wage increase is passed through to consumer
prices in the food and family service products, a 5% increase in the minimum
wage (an increase of 1.000 Leks/ monthly) would not increase food prices
because the actually market has not a direct link with that, since the informality
distort the labour market at least for last twenty years.
This confirmation has its own arguments, in the past time figures. If we see that
minimum wage has increased more than 2 times during the period of time 2000
– 2015, it is not the same increase rate for the consume prices. The consume
prices have increased only 41.5% during this time. This report between
minimum wage increase and change of consume prices confirm that the wage
increase has not direct effect to inflation rate.
Even some prices of food and services would increase as an direct reaction of
minimum wage increase that effect is neutralised by the implication of economic,
budgetary and monetary policies that influence strongly in the dynamics of
inflation rate and economic growth.
Minimum wage and Prices in Albania, 2000-2015 Lek
Years 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Difference
2015/2000
Minimum wage 7.000 7.580 9.400 10.060 10.080 11.800 14.000 14.000 17.000 18.000 19.000 20.000 21.000 22.000 22.000 22.000 15.000
Change in minimum
wage
0 8,3% 24,0% 7,0% 0,2% 17,1% 18,6% 0,0% 21,4% 5,9% 5,6% 5,3% 5,0% 4,8% 0,0% 0,0% 214%
Approximately change
in consume prices
0 3,1% 5,3% 2,4% 2,9% 2,4% 2,4% 2,9% 2,2% 3,5% 3,6% 3,4% 1,9% 2,1% 1,6% 1,8% 41,5%
Source: INSTAT
Evidence leads us to conclude that increases in the minimum wage are a useful
means of raising wages in the lower part of the wage distribution that has little
or no effect on employment and hours.
Anyhow, the relatively small contribution of the real minimum wage increase to
the increase in formal sector wages indicates that minimum wages are not a
substitute for a growing economy or investments.

10. www.al-tax.org
Minimum wage increase and consume prices
10
REFERENCES
Chinkook Leea, Gerald Schlutera, Brian O’Roark. Minimum wage and food prices: an
analysis of price pass-through effects. International Food and Agribusiness Management
Review
Sara Lemos. The Effect of the Minimum. Wage on Prices, University of Leicester and IZA
Bonn, 2004
Sara Lemos. A Survey of the Effects of the Minimum Wage on Prices, University of
Leicester, 2006
Rocheteau, Guillaume; Tasci, Murat. “The Minimum Wage and the Labor Market”
Federal Reserve Bank of Cleveland, May 2007
Journal of Public Economics, “Optimal Minimum Wage Policy in Competitive Labor
Markets,” 2012
National Bureau of Economic Research, “Revisiting the Minimum Wage-Employment
Debate: Throwing the Baby Out with the Bathwater?”, 2013
Congressional Budget Office “The Effects of a Minimum-Wage Increase on Employment
and Family Income,” 2014
INSTAT, Anketa e Kostove të punës, 2013

11. www.al-tax.org
Minimum wage increase and consume prices
11
ALTAX
Fiscal Studies
Minimum wage increase and consume prices
www.al-tax.org
altax@constultant.com
May 2016
Tirana, Albania