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Firms and the minimum wage: profile and profitability

A. Naouas, M. Orand and I. Slimani Houti
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A. Naouas: Dares
M. Orand: Insee
I. Slimani Houti: Insee

Documents de Travail de l'Insee - INSEE Working Papers from Institut National de la Statistique et des Etudes Economiques

Abstract: The objectives of this study are to draw a profile of firms with employees paid at the minimum age level and to examine the correlation between profitability and exposition to the minimum wage. This exposition to the minimum wage is measured through the proportion of the firms employees affected by the annual increases of the minimum wage. The profitability of the firm is approached through four indicators: margin rate, gross and net economic profitability and financial profitability. The exposition to the minimum wage is greater for smaller, younger, independent and capital intensive firms, especially in the hotel, food service and trade industries. An econometric analysis, controlling firms size, industry and age, shows no significant link between exposition to the minimum wage and profitability. This doesnt mean that the minimum wage has no effect whatsoever on a firms profitability. Other mechanisms can interfere, for example the fact that the exposition to the minimum wage and the profitability can be codetermined by unobserved factors, such as the negotiation power of the firm on the labour market. Firms could also have adapted their productivity or the structure of the workforce to the enduring presence of a minimum wage, reaching a form of equilibrium.

Keywords: minimum wage; profitability (search for similar items in EconPapers)
JEL-codes: D22 J31 J38 L10 (search for similar items in EconPapers)
Date: 2016
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