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The Minimum Wage in Firms’ Organizations: Productivity Implications

Author

Listed:
  • Lawson, Nicholas
  • Lelarge, Claire
  • Spanos, Grigorios

Abstract

We exploit a unique policy setting in France (2003–2006), where multiple minimum wages coexisted, and show that higher minimum wages reduce firm-level employment, flatten hierarchies, increase training and raise revenue productivity per worker. We construct and calibrate a general equilibrium model of optimal hierarchies that rationalizes these findings: higher minimum wages lead firms to rely on more skilled workers who become less dependent on supervision, which results in flatter organizations and endogenous productivity gains that partly offset aggregate output losses. These losses are amplified in economies with advanced communication technologies but mitigated with superior information-processing or problem-solving technologies.

Suggested Citation

  • Lawson, Nicholas & Lelarge, Claire & Spanos, Grigorios, 2023. "The Minimum Wage in Firms’ Organizations: Productivity Implications," CEPR Discussion Papers 18425, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:18425
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    Keywords

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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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