respond to the policy by raising wages rather than by reducing employment and to the assumption that wages in higher parts of the distribution are not affected by the policy, which could be important for the public sector.

**Moreover, the potential impact of raising the minimum wage on formal-sector employment is noteworthy, but some caveats apply.** The extent of the impact on formal jobs hinges on the assumed elasticities. Additionally, it is important to acknowledge that our microsimulation does not encompass potential positive macroeconomic outcomes resulting from a minimum wage hike. This implies a broader increase in household consumption and a potential growth in investments, albeit to a lesser extent, ultimately leading to an increase in GDP. Furthermore, the microsimulation does not factor in the likelihood that individuals who experience job loss might secure new employment opportunities. Consequently, our microsimulation's estimates regarding employment losses are likely toward the upper end of the actual range. Job reductions are most pronounced among younger employees. Moreover, changes in informal sector employment due to the policy are not considered, as workers in firms that do not comply with legal tax obligations are not in the data. This is important as some workers in the formal sector might shift into informal work rather than unemployment, mitigating overall job losses and the impact on unemployment.

**Finally, the extent to which the minimum wage raises affect the labor income distribution is sensitive to individuals' labor market transitions after losing their jobs.** If individuals transition to lower-quality jobs with significantly lower wages, the influence of the minimum wage hike on labor income inequality<sup>28</sup> is negligible. While certain low-income workers experience an income boost, a smaller fraction faces almost a complete loss of income. The minimum wage increase is notably progressive if dismissed workers move to unemployment or inactivity, and the pool of still employed workers is higher paid, on average.

**Further studies should evaluate the fiscal implications of raising the minimum wage.** On the expenditure side, this can prompt several fiscal considerations for the public sector. These include a potential uptick in the wage bill, considering the current indexation system in the public sector pay system. Additionally, budget reallocations may be necessary to accommodate increased wages for public sector employees. Furthermore, there may be concerns regarding inflationary pressures stemming from higher costs of goods and services provided. Conversely, raising minimum wages could reduce the need for certain social welfare programs, particularly as low-wage workers, who tend to be overrepresented among poor families, earn more income. This, in turn, could translate into government savings concerning social assistance and welfare disbursements. On the revenue side, raising the minimum wage might also yield higher tax revenues for the government, especially given the flat Personal Income Tax (PIT) structure. Nonetheless, this could be fully or partially offset by the potential job losses or reduced working hours, resulting in lower overall tax revenue.

> 28 This is estimated based on gross labor income in tax administrative data.

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