Work detail

Estimating the elasticities of labour supply for SMEs in Bosnia and Herzegovina

Author: Mgr. Ada Šabić
Year: 2014 - summer
Work type: Masters
Language: English
Pages: 79
Awards and prizes:
Abstract: This Master thesis aims at testing the intertemporal substitution hypothesis (ISH) for small
and medium enterprises in Bosnia and Herzegovina. We predicted a positive relationship
between the hours worked and the transitory changes in wages, and tested the hypothesis
using the data collected via surveys of small entrepreneurs in North-Western Bosnia and
Herzegovina; collecting data on daily income and the hours worked. The estimated wage
elasticities are positive and different from zero, according to which it appears that the
hypothesis of negative wage elasticities has no empirical evidence in the case of Bosnian and
Herzegovinian entrepreneurs. This result implies that the intertemporal labour substitution
hypothesis found supportive evidence and that we can reject the daily targeting hypothesis.
We also argue that entrepreneurs tend to pursue profits across working days because their
main motive for running a business is the accumulation of capital and wealth, so that they
follow the pattern of intertemporal labour substitution. The findings can be explained by an
unfavourable business climate in Bosnia and Herzegovina, which is a result of a long-lasting
transition process the country is still undergoing.




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