The Minimum Wage Effects on Earnings and Sorting

This paper investigates the effects of the introduction of a nationwide minimum wage in Thailand on earnings and sorting. Using Thai matched employer-employee data, we first show that there is a great degree of mobility differential even among workers with similar wages and this relationship is complex. To evaluate the policy and understand its mechanism, we therefore adopt a flexible semi-parametric framework from Lentz et al. (2023) that allows for double-sided heterogeneity in workers and firms in both wages and mobility. Our results show that there is no disemployment effect on workers who were employed before the policy took place. However, there is an adverse effect on workers who were not employed for a period of time before the policy where their re-employment probability declined. Sorting among new employment matches after the policy became less positive. Low type or less productive firms exited the market and workers reallocated from these firms to more productive ones. Overall, we find that the minimum wage raised earnings for all worker types but with variation in sizes of the gains. We use the model to decompose sources of earnings gains. We find that mobility accounts for a substantial fraction of earnings gains in the short-term, but post policy job-to-job transitions can affect earnings of some worker types negatively. This makes the long-term income implication of the policy unclear as mobility evolves over time. We therefore use the model to simulate the net present value of lifetime income of workers. Despite the negative effect of mobility, the long-term gains on net present value of lifetime income over 20 years are substantial.