# **1. Introduction**

This paper relies on simple framework to understand the gender wage gap in Macedonia and then simulates how the gender wage gap would behave after the introduction of a minimum wage.

A recent labor market assessment conducted in the country by the World Bank (Angel-Urdinola and Macias, 2008) indicates that female labor force participation in Macedonia (at 49%) is one of the lowest in the ECA region (and significantly lower than that of males, at 75%). The authors find that low labor force participation for women is mainly explained by very low participation rates among women with low levels of education. While there are cultural values affecting the choice of low-educated women to engage in domestic production, especially among women of Albanian origin, low market wages, high reservation wages, and harsh employment conditions seem to be important exclusion determinants influencing uneducated women to stay at home (CRPM, 2008). According to the law (Article 108 in the labor relations law of 2005), employers shall be obliged to pay equal salary to employees for equal work with equal responsibilities at the position, regardless of their gender. However, estimates in this paper indicate that a large wage gap exist between men and women that is not necessarily explained by labor segmentation (whereby women enter sectors offering lower-pay) or by differences in returns to education by gender, but more likely by discrimination (whereby men in similar sectors, with similar education, and doing similar jobs earn higher wages than their female counterparts).

Angel-Urdinola and Macias (2008) find that low labor mobility, especially among low-skilled women, strengthens the sense of “local” (and non-convergent) labor markets whereby differences in employment outcomes across regions are quite large. Nevertheless, workers – especially women – seem not to move from worse to better performing regions in order to seek better job opportunities. These combined factors are generally prevalent in labor markets where firms have monopsonistic power. The implication of this is that firms may be paying women workers below their marginal product of labor, which causes the supply of labor to be below that in a competitive setting (a feature that may be affecting women disproportionally). Indeed, in some regions in Macedonia, a large share of working women is employed by a few large textile companies. These women claim having to accept jobs with very precarious conditions (in terms in pay, safety, and working hours) due to lack of alternative employment opportunities (CRPM, 2008).

If indeed low-educated workers in Macedonia, especially women, face a monopsonistic market; standard economic theory would indicate that the introduction of a minimum wage above the monopolistic wage but below the competitive market wage would likely increase employment without causing additional unemployment (Aaronson et al., 2008; Kaas and Madden, 2008; Joshi and Paci, 1998). While the introduction of a minimum wage in the private sector has been a policy already considered in Macedonia, it has not been introduced.<sup>1</sup> This is because minimum wage policy is heavily influenced

> 1 Article 107 in the labor relations law specifies that an employee’s salary for carrying out full-time work may not be lower than the minimum salary determined by law and collective agreement. However, minimum wages are not enforced in the private sector and are currently set unilaterally by the Ministry of Labor and Social Protection as benchmark to determine the salary grid for public servants.

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