This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Minimum Wages and Firm Profitability

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Mirko Draca
Stephen Machin
John Van Reenen

Additional information is available for the following registered author(s):

Abstract

Although there is a large literature on the economic effects of minimum wages on labour marketoutcomes (especially employment), there is hardly any evidence on their impact on firm performance.This is surprising: minimum wages appear to have a significant impact on wages, but only a limitedimpact on jobs, so it is natural to imagine there must be a stronger impact on other aspects of firmbehaviour. In this paper we consider the impact of minimum wages on firm profitability by exploitingthe introduction of a minimum wage to the UK labour market in 1999. We use pre-policy informationon the distribution of wages to construct treatment and comparison groups and implement a differencein differences approach. We show evidence that firm profitability was significantly reduced (andwages significantly raised) by the minimum wage introduction. This emerges from separate analysesof two distinct types of firm level panel data (one on firms in a very low wage sector, UK residentialcare homes, and a second on firms across all sectors). Interestingly, we find no evidence that theprofitability reductions resulted in increases in firm exit, so our findings may be consistent withredistribution of quasi-rents towards low wage employees.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://cep.lse.ac.uk/pubs/download/dp0715.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0715.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:cep:cepdps:dp0715

Contact details of provider:
Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords: Minimum Wage; Profitability; Exit;

Other versions of this item:

Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June. [Downloadable!] (restricted)
  2. Mark B. Stewart, 2004. "The Impact of the Introduction of the U.K. Minimum Wage on the Employment Probabilities of Low-Wage Workers," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 67-97, 03. [Downloadable!] (restricted)
    Other versions:
  3. repec:fth:prinin:300 is not listed on IDEAS
  4. Richard Dickens & Alan Manning, 2002. "Has The National Minimum Wage Reduced UK Wage Inequality?," CEP Discussion Papers dp0533, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  5. Daniel Aaronson, 2001. "Price Pass-Through And The Minimum Wage," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 158-169, February. [Downloadable!] (restricted)
  6. Metcalf, David, 2002. " The National Minimum Wage: Coverage, Impact and Future," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(0), pages 567-82, Supplemen. [Downloadable!] (restricted)
  7. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
    Other versions:
  8. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier. [Downloadable!] (restricted)
  9. Stephen R. Bond & Jason G. Cummins, 2000. "The Stock Market and Investment in the New Economy: Some Tangible Facts and Intangible Fictions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2000-1), pages 61-124. [Downloadable!]
  10. Stephen Machin & Joan Wilson, 2004. "Minimum wages in a low-wage labour market: Care homes in the UK," Economic Journal, Royal Economic Society, vol. 114(494), pages C102-C109, 03. [Downloadable!] (restricted)
  11. Stephen Nickell & D Nicolitsas, 1994. "Wages," CEP Discussion Papers dp0219, Centre for Economic Performance, LSE. [Downloadable!]
  12. Van Reenen, John, 1994. "The Creation and Capture of Rents: Wages and Innovation in a Panel of UK Companies," CEPR Discussion Papers 1071, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  13. Timothy Besley & Robin Burgess, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," STICERD - Development Economics Papers 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
    Other versions:
  14. Ashenfelter, Orley & Smith, Robert S, 1979. "Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 333-50, April. [Downloadable!] (restricted)
    Other versions:
  15. Machin, Stephen & Van Reenen, John, 1993. "Profit Margins and the Business Cycle: Evidence from UK Manufacturing Firms," Journal of Industrial Economics, Blackwell Publishing, vol. 41(1), pages 29-50, March. [Downloadable!] (restricted)
  16. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2001. "Evaluating the employment impact of a mandatory job search assistance program," IFS Working Papers W01/20, Institute for Fiscal Studies. [Downloadable!]
  17. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
  18. David Metcalf, 2002. "The National Minimum Wage: Coverage, Impact and Future," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(s1), pages 567-582, 08. [Downloadable!] (restricted)
  19. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-93, September. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alison Booth & Mark L. Bryan, 2006. "Training, Minimum Wages and the Earnings Distribution," CEPR Discussion Papers 537, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
  2. Mirco Tonin, 2007. "Minimum Wage and Tax Evasion: Theory and Evidence," IEHAS Discussion Papers 0701, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
    Other versions:
  3. Raffaella Sadun, 2008. "Does Planning Regulation Protect Independent Retailers?," CEP Discussion Papers dp0888, Centre for Economic Performance, LSE. [Downloadable!]
Statistics
Access and download statistics

Did you know? About five million pdf files are downloaded through RePEc every year.

This page was last updated on 2009-11-18.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.