Minimum Wages and Firm Profitability

Mirko Draca, Stephen Machin and John van Reenen

American Economic Journal: Applied Economics, 2011, vol. 3, issue 1, 129-51

Abstract: We study the impact of minimum wages on firm profitability, exploiting the changes induced by the introduction of a UK national minimum wage in 1999. We use pre-policy information on the distribution of wages to implement a difference-in-differences approach. Minimum wages raise wages, but also significantly reduce profitability (especially in industries with relatively high market power). This is consistent with a simple model where wage gains from minimum wages map directly into profit reductions. There is some suggestive evidence of longer run adjustment to the minimum wage through falls in net entry rates. (JEL J31, J38, L25)

JEL-codes: J31 J38 L25 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/app.3.1.129
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Citations: View citations in EconPapers (165)

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Related works:
Working Paper: Minimum Wages and Firm Profitability (2008)
Working Paper: Minimum Wages and Firm Profitability (2006)
Working Paper: Minimum Wages and Firm Profitability (2006)
Working Paper: Minimum wages and firm profitability (2006)
Working Paper: Minimum Wages and Firm Profitability (2006)
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