<mark>The employment rate would decrease by 1.7 percentage points. The net effect of the policy on earnings would constitute a decrease in earnings of 4.4 percent.</mark>

**Table 5. Ex-ante evaluation of the impact of minimum wages, sensitivity to the value of elasticity**

||Nopolicy|Low Elasticityo<br>|f labor demand<br>|High elastic<br>dem<br>|ity of labor<br>and<br>|Perfectly<br>elastic<br>|
|---|---|---|---|---|---|---|
|||Short-run|Long-run|Short-run|Long-run|labor demand|
|Employment rate, %|28.80|28.74|28.67|28.60|28.53|27.08|
|||[28.72; 28.76]|[28.64; 28.70]|[28.57; 28.63]|[28.49; 28.56]||
|Unemployment rate, %|29.59|29.75|29.91|30.09|30.26|33.81|
|||[29.71; 29.79]|[29.84; 29.98]|[30.02; 30.16]|[30.18; 30.36]||
|Youth unemployment rate,|||||||
|%|55.41|55.68|56.02|56.37|56.71|62.54|
|||[55.53; 55.85]|[55.81; 56.28]|[56.09; 56.65]|[56.34; 57.02]||
|Share of youth NEETs, %|30.11|30.20|30.26|30.32|30.38|31.40|
|||[30.17; 30.23]|[30.22; 30.31]|[30.26; 30.39]|[30.32; 30.47]||
|Change in real earnings, %||0.51|0.31|0.10|-0.11|-4.37|
|_Note: Note: Kosovo LFS 2018_|_is used. Wages_|[0.46;0.56]<br>_are imputed as describ_|[0.23;0.40]<br>_ed in Section 2. Low_|[0.01;0.19]<br>_labor demand elast_|[-0.23;-0.00]<br>_icity value is set at_|_-0.1 (-0.4) for_|

_Note: Note: Kosovo LFS 2018 is used. Wages are imputed as described in Section 2. Low labor demand elasticity value is set at -0.1 (-0.4) for skilled labor and -0.3 (-0.6) for unskilled labor in the short (long) run. High labor demand elasticity value is set at -0.7 (-1) for skilled labor and - 0.9 (-1.2) for unskilled labor in the short (long) run. Only employees with wages between the old and the proposed minimum wage are assumed to be affected. Aged 15-64. 95 confidence intervals are in brackets._

# **<mark>Expected poverty impacts are still contained, even assuming high labor demand elasticity.</mark>**

<mark>As a result of a slightly larger negative impact on the employment rate, poverty incidence can increase up to 0.2 and 0.4 percentage points in the short run and medium run, assuming a high wage elasticity.</mark>

**<mark>Figure 15 Panel a shows the variation of the effect by demographic characteristics assuming low labor demand elasticity, while Figure 14 Panel b shows the variation of the effect assuming high elasticity</mark>** <mark>. From Figure 15 Panel b we see that, if the demand is highly elastic, the net effect of minimum wage is especially adverse for those with low levels of education (0.6 percent decrease in earnings).</mark>

**<mark>The simulated effect on public sector earnings is minor, but the effect on earnings is stronger among the young and less educated.</mark>** <mark>Figure 16 shows the simulated long-run effect of the minimum wage on private and public sector earnings assuming a range of elasticity values.  In the long run, public sector wages can increase between -0.02 and 0.05 percent, while private sector wages can vary between -0.2 and 0.56 percent. Figure 17 shows the simulated change in earnings by demographic characteristics assuming perfectly elastic labor demand (worst-case scenario), suggesting strong negative effects for the young and less educated. In this extreme case, earnings among young (aged 15-19) can be decreased by more than 20 percent.</mark>

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