The relationship between informal economy and minimum wage: A research on E7 countries

There are many socio-economic factors that cause economic instability in countries. Informal economy and minimum wage are among the socio-economic factors affecting many countries. In this context, the aim of this study is to investigate the relationship between informal economy and minimum wage in E7 countries between 1999-2018. Panel data analysis is used in the study. Inflation rate and GDP per capita variables are also included in the analysis. In the research, a two-model analysis was carried out. Therefore, Driscoll Kraay estimator, which is an efficient estimation method, is usIn the first model, the effects of minimum wage, GDP per capita and inflation variables on the informal economy are analyzed. In the second model, the effects of informal economy, GDP per capita and inflation variables on minimum wage are analyzed. It was decided to use the fixed effects model in the analysis. In the fixed effects model, problems of changing variance, autocorrelation and inter-unit correlation were encountered. Therefore, the Driscoll Kraay estimator, which is an efficient estimation method, is used. According to the results obtained, it is concluded that the effect of minimum wage and inflation on the informal economy is positive. The effect of GDP per capita on the informal economy is negative. Informal economy and GDP per capita are positively related to minimum wage. There is an inverse relationship between inflation and minimum wage. In general, when the main variables are analyzed, it is concluded that there is a positive and bidirectional relationship between the informal economy and minimum wage.