Baltic International Centre for Economic Policy Studies (BICEPS) is a partner in the Nordic-Baltic project Global2Micro on how companies deal with economic uncertainty.
BICEPS is participating in the Baltic Research Program project “Micro-level responses to socio-economic challenges in face of global uncertainties” (Global2Micro) funded by the European Economic Area (EEA) countries (Iceland and Lichtenstein) and Norway grants for the period 2014–2021.
The aim of the project is to achieve a deeper understanding of how firms adjust their behaviour in the uncertain and evolving environment caused by events such as an increased concentration on domestic matters and engagement in trade wars by the US, the British decision to leave the European Union and an increase in global political and economic power by China, as well as current pandemic and global lockdowns.
These broad socio-economic challenges will be tackled by analysing in detail, firstly, how firms adjust to trade and labour market shocks in terms of their labour allocations, human capital and technological investments; secondly, concentrating on how the two major adjustments of firms’ production functions – labour and technology – interact in response to increasing global uncertainty, especially in the face of deglobalisation and the fragmentation of global trade links; finally, combining the empirical insights from the first and the second blocks, and building a theoretical framework on the labour market adjustments, paying special attention to the complementarity/substitutability of new types of labour and capital as well as labour and technology (automation). The three blocks will take three different approaches – empirical analysis based on administrative data, empirical analysis based on the new big data methods, theoretical and structural analysis – and dovetail in the plan to understand the firm- and individual-level adjustments.
BICEPS will mainly contribute to the analysis of firms’ reaction to minimum wage shocks. How do firms adapt to such changes in the labour market policy? How does a minimum wage hikes affect employment? A particular characteristic of the labour markets in the region is the prevalence of the so-called “envelope wages”, i.e., unreported cash-in-hand complements to the official wage. In this setup, minimum wage policy can become a fiscal policy tool: a minimum wage hike pushes firms to convert part of the envelope into official wage to comply with the new level, so that they remain under the tax authorities’ radar. Can wage underreporting act as a buffer to absorb minimum wage shocks?
The first study completed by BICEPS researchers under the Global2Micro project is available as SSE Riga/BICEPS Research paper What we pay in the shadow: Labor tax evasion, minimum wage hike and employment.
The expected project consortium results include not less than 12 theoretical and empirical publication in high level academic journals, a number of working papers and policy notes to foster economic policy debate among economic agents and equip the policy makers with relevant economic policy tools, the creation of new databases available to economic researchers in the future, the organization of one large international conference and enhanced research network that would serve as a platform for future collaborations.
The project period runs from January 2021 until the end of 2023.
The research consortium is led by Vilnius University. Other research partners are Tallinn University of Technology, BI Norwegian Business School, University of Tartu and Hong Kong University of Science and Technology.
Marija Krumina is BICEPS project manager for the Global2Micro project. Nicolas Gavoille and Anna Zasova are BICEPS senior researchers associated with the Global2Micro project. Nicolas Gavoille is also a contact person for the project.
Project contract with the Research Council of Lithuania is S-BMT-21-8 (LT08-2-LMT-K-01-073).