Minimum Wages and Firm Value

Brian Bell and Stephen Machin

No 9914, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: How does the value of a firm change in response to a minimum wage hike? The evidence we have to date is not well-suited to answer this question, principally because events that have been studied are not completely unknown to the stock market or have uncertainty associated with them. This paper exploits the announcement of a sizeable change in the minimum wage in the UK that was both totally unanticipated and free of uncertainty. The stock market response of employers of minimum wage workers is examined in an event study setting, looking at minute-by-minute changes surrounding the announcement and at cumulative abnormal returns on a daily basis before and after the announcement. The analysis uncovers significant falls in the stock market value of low wage firms. The size of the fall in value is compared to the fall in profitability in response to the wage cost shock that will be induced by the announcement and is seen to be of a comparable magnitude.

Keywords: minimum wages; firm value (search for similar items in EconPapers)
JEL-codes: J23 L25 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2016-04
New Economics Papers: this item is included in nep-eur, nep-pr~ and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published - published in: Journal of Labor Economics, 2018, 36, 159-95

Downloads: (external link)
https://docs.iza.org/dp9914.pdf (application/pdf)

Related works:
Journal Article: Minimum Wages and Firm Value (2018)
Working Paper: Minimum wages and firm value (2018)
Working Paper: Minimum wages and firm value (2016)
Working Paper: Minimum wages and firm value (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp9914

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().