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

Author

Listed:
  • Fernando Alexandre

    (NIPE/Universidade do Minho)

  • Pedro Bação

    (Univ Coimbra, CeBER, FEUC)

  • João Cerejeira

    (NIPE/Universidade do Minho)

  • Hélder Costa

    (NIPE/Universidade do Minho)

  • Miguel Portela

    (NIPE/Universidade do Minho and IZA Bonn)

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," GEE Papers 0154, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Jul 2020.
    • Handle: RePEc:mde:wpaper:0154
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    References listed on IDEAS

    as
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    Cited by:

    1. Branco, Catarina & Dohse, Dirk & dos Santos, João Pereira & Tavares, José, 2022. "Nobody's gonna slow me down? The effects of a transportation cost shock on firm performance and behavior," Ruhr Economic Papers 949, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. 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.
    3. 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.
    4. 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).
    5. Devicienti, Francesco & Fanfani, Bernardo, 2021. "Firms' Margins of Adjustment to Wage Growth: The Case of Italian Collective Bargaining," IZA Discussion Papers 14532, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    minimum wage; financially distressed firms; productivity;
    All these keywords.

    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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