EconPapers    
Economics at your fingertips  
 

Minimum Wages and Firm Profitability

Stephen Machin, John van Reenen and Mirko Draca

No 5456, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Although there is a large literature on the economic effects of minimum wages on labour market outcomes (especially employment), there is hardly any evidence on their impact on firm performance. This is surprising: minimum wages appear to have a significant impact on wages, but only a limited impact on jobs, so it is natural to imagine there must be a stronger impact on other aspects of firm behaviour. In this paper we consider the impact of minimum wages on firm profitability by exploiting the introduction of a minimum wage to the UK labour market in 1999. We use pre-policy information on the distribution of wages to construct treatment and comparison groups and implement a difference in differences approach. We show evidence that firm profitability was significantly reduced (and wages significantly raised) by the minimum wage introduction. This emerges from separate analyses of two distinct types of firm level panel data (one on firms in a very low wage sector, UK residential care homes, and a second on firms across all sectors). Interestingly, we find no evidence that the profitability reductions resulted in increases in firm exit, so our findings may be consistent with redistribution of quasi-rents towards low wage employees.

Keywords: Minimum wage; Profitability; Exit (search for similar items in EconPapers)
JEL-codes: J23 L25 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-bec and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://cepr.org/publications/DP5456 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Minimum Wages and Firm Profitability (2011) Downloads
Working Paper: Minimum Wages and Firm Profitability (2008) Downloads
Working Paper: Minimum Wages and Firm Profitability (2006) Downloads
Working Paper: Minimum wages and firm profitability (2006) Downloads
Working Paper: Minimum Wages and Firm Profitability (2006) Downloads
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:cpr:ceprdp:5456

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP5456

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-27
Handle: RePEc:cpr:ceprdp:5456