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Who Pays for the Minimum Wage?

Peter Harasztosi and Attila Lindner

American Economic Review, 2019, vol. 109, issue 8, 2693-2727

Abstract: This paper provides a comprehensive assessment of the margins along which firms responded to a large and persistent minimum wage increase in Hungary. We show that employment elasticities are negative but small even four years after the reform; that around 75 percent of the minimum wage increase was paid by consumers and 25 percent by firm owners; that firms responded to the minimum wage by substituting labor with capital; and that disemployment effects were greater in industries where passing the wage costs to consumers is more difficult. We estimate a model with monopolistic competition to explain these findings.

JEL-codes: J23 J24 J31 J38 L13 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aer.20171445
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