Minimum Wage and Unemployment: Evidence from Russia

This paper investigates the unemployment effects of the Russian minimum-wage policy. The results suggest that higher minimum wages slightly increase unemployment rates among young workers but do not affect the older workforce. The textbook theory of producer is employed to rationalize the findings, showing that the magnitude of employment responses to minimum wages is associated with the elasticity of capital-labor substitution. Moreover, industries employ more workers informally if they cannot exercise capital-labor substitution easily. In line with the revealed unemployment among youth and informalization of the economy induced by the intervention, the findings show limited income effects of the policy.