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Impact of the Minimum Wage on Expected Profits

  • Gail Pacheco
  • Vic Naiker

This paper investigates the impact of a significant reform to the youth minimum wage in New Zealand in 2001, on the expectations of low wage employers' profits. In March 2001, the eligibility for adult minimum wage rates was lowered from 20 to 18 years while the youth minimum wage for 16-17 year olds was also increased from 60 to 70% of the adult minimum wage. We construct a descriptive profile of minimum wage workers in New Zealand and their industry membership. We find that most minimum wage workers in New Zealand predominantly work in the four industry sectors; (1) Retail, (2) Textile and apparel, (3) Accommodation, cafes and restaurants, and (4) Agriculture, forestry, and fishing. Next using an event study methodology we examine the economic impact of the substantial increase in youth minimum wage rates on employers in industries with high concentrations of minimum wage workers. Surprisingly, all conclusions point to there being an insignificant impact on profit expectations for low wage employers by investors.

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Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 20 (2006)
Issue (Month): 4 ()
Pages: 469-490

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Handle: RePEc:taf:irapec:v:20:y:2006:i:4:p:469-490
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  1. David Card & Alan Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," Working Papers 694, Princeton University, Department of Economics, Industrial Relations Section..
  2. David Neumark, 1999. "The Employment Effects of Recent Minimum Wage Increases: Evidence from a Pre-specified Research Design," NBER Working Papers 7171, National Bureau of Economic Research, Inc.
  3. Saeyoung Chang, 1998. "Takeovers of Privately Held Targets, Methods of Payment, and Bidder Returns," Journal of Finance, American Finance Association, vol. 53(2), pages 773-784, 04.
  4. William Gissy, 1998. "Minimum wage and employment in the fast food industry," Atlantic Economic Journal, International Atlantic Economic Society, vol. 26(3), pages 304-308, September.
  5. Bittlingmayer, George & Hazlett, Thomas W., 2000. "DOS Kapital: Has antitrust action against Microsoft created value in the computer industry?," Journal of Financial Economics, Elsevier, vol. 55(3), pages 329-359, March.
  6. Dan Horsky & Patrick Swyngedouw, 1987. "Does it Pay to Change Your Company's Name? A Stock Market Perspective," Marketing Science, INFORMS, vol. 6(4), pages 320-335.
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