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Minimum wage and financially distressed firms: another one bites the dust

Author

Listed:
  • Fernando Alexandre

    (Universidade do Minho, NIPE, Escola de Economia e Gestão)

  • Pedro Bação

    (University of Coimbra, Centre for Business and Economics,CeBER, Faculty of Economics)

  • João Cerejeira

    (Universidade do Minho, NIPE, Escola de Economia e Gestão)

  • Hélder Costa

    (Universidade do Minho, NIPE, Escola de Economia e Gestão)

  • Miguel Portela

    (Universidade do Minho, NIPE, Escola de Economia e Gestão)

Abstract

Since late 2014, Portuguese Governments adopted ambitious minimum wage policies. Using linked employer-employee data, we provide an econometric evaluation of the impact of those policies. Our estimates suggest that minimum wage increases reduced employment growth and profitability, in particular for financially distressed firms. We also conclude that minimum wage increases had a positive impact on firms’ exit, again amplified for financially distressed firms. According to these results, minimum wage policies may have had a supply side effect by accelerating the exit of low profitability and low productivity firms and, thus, contributing to improve aggregate productivity through a cleansing effect.

Suggested Citation

  • Fernando Alexandre & Pedro Bação & João Cerejeira & Hélder Costa & Miguel Portela, 2020. "Minimum wage and financially distressed firms: another one bites the dust," CeBER Working Papers 2020-14, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2020-14
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    Cited by:

    1. Branco, Catarina & Dohse, Dirk C. & Pereira dos Santos, João & Tavares, José, 2023. "Nobody’s gonna slow me down? The effects of a transportation cost shock on firm performance and behavior," Journal of Urban Economics, Elsevier, vol. 136(C).
    2. Zhu, Ruoyu & Tan, Kehu & Xin, Xiaohui, 2024. "Does the opening of high-speed rail inhibit corporate zombification?," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 372-389.
    3. Akgündüz, Yusuf Emre & Bağır, Yusuf Kenan & Cılasun, Seyit Mümin & Kırdar, Murat Güray, 2023. "Consequences of a massive refugee influx on firm performance and market structure," Journal of Development Economics, Elsevier, vol. 162(C).
    4. Christian Weise, 2020. "Portugal’s Performance after the Macroeconomic Adjustment Programme," European Economy - Economic Briefs 058, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Richards, Timothy J. & Paudel, Ujjwol, 2025. "Minimum Wages and Employment," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 361159, Agricultural and Applied Economics Association.
    6. Ricardo Barradas & João Alcobia, 2024. "Determinants Of The Portuguese External Imbalances: The Lens Of Post-Keynesian Economics," Working Papers REM 2024/0334, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    7. Medrano-Adán, Luis & Salas-Fumás, Vicente, 2023. "Do minimum wages deliver what they promise? Effects of minimum wage on employment, output, and income inequality from occupational choice theory," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 366-383.
    8. Catarina Branco & Dirk C. Dohse & João Pereira Santos & José Tavares, 2022. "The impact of a rise in transportation costs on firm performance and behaviour," GEE Papers 0167, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Sep 2022.
    9. Francesco Devicienti & Bernardo Fanfani, 2025. "Firms' margins of adjustment to wage growth: the case of Italian collective bargaining," Economica, London School of Economics and Political Science, vol. 92(365), pages 107-149, January.

    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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