SOCOL CRISTIAN| MARINAS MARIUS MINIMUM WAGE AS A PUBLIC POLICY INSTRUMENT – PROS AND CONS Furthermore, the payment of a salary above the market level limits the situations generated by adverse selection and moral hazards. The higher skilled workers are often more aware of the opportunities to avail themselves of their skills in other companies and realize that the period of looking for a better paid job is shorter and, as a consequence, the companies risk remaining with lower skilled workers. By raising the wages, the companies can reduce adverse selection and improve the workforce quality. The moral hazards occur because the employees tend to be less diligent at work, as there is not a proper system in place to monitor their performance. The wage increase raises the opportunity cost of unemployment caused by improper performance and stimulates the workforce to become more productive. According to this theory, the rise of the minimum wage can generate additional productivity gains among the workers with relatively lower skills. Minimum wage impact adjustment mechanisms Confronted with the expansion of production costs as a result of the minimum wage increase, the companies may react differently, depending on their business standing and strategies and on the overall evolution of the economy. If all of the other conditions remain constant, a higher minimum wage can be adjusted by reducing employment or by raising inflation. If the increase of the minimum wage is not correlated with a similar evolution of the productivity or turnover, the companies will be rather inclined to contract the employment, contributing to a rise in the unemployment rate, than to accept a further decline in profits. If the business standing of the company is good, the expansion of the wage costs will be easier to internalize by cutting the profits or raising the prices paid by the final customers. As a consequence, during the periods when the companies manage to transfer the additional costs to prices without impairing the turnover or when the overall evolution of the economy supports an increase in the volume of products sold, the minimum wage will not have a negative impact on employment. Thus, the minimum wage should be introduced/ increased in periods of economic growth, when the companies are confident in the medium-term economic outlook. 2. Review of the relevant literature on the impact of minimum wage introduction/increase While the initial studies exclusively focused on the connection between the minimum wage and employment, the literature gradually diversified as the authors started looking into other relationships, e.g. those with the informal sector of the labor market, with the wage and income inequality, with inflation and the competitiveness of companies. In this paper, we grouped the results in the relevant literature depending on the studied topics. Relația salariu minim-ocupare The first econometric estimations of the impact of the minimum wage on employment, e.g. Schaafsma and Walsh(1983), showed that the minimum wage had a negative impact on employment for all the age groups included in the study. In general, the younger and the lower skilled persons are the most affected by the increase of the minimum wage, as they are remunerated close to its level. In the 1990s, the studies(e.g. Brown et al., 1982 and 1983) suggested that the elasticity of employment to the increase of the minimum wage ranged from-0.1 to ­0.3, with higher values for the youth employment. In the 2000s, higher levels of elasticity were determined(e.g. Neumark and Wascher, 2006):-1 in USA,-4.6 in France for certain categories of employees, or+1 in some Nordic countries. 6