Raising the Standard: Minimum Wages and Firm Productivity

Rebecca Riley and Chiara Rosazza-Bondibene ()
Authors registered in the RePEc Author Service: Chiara Rosazza Bondibene

No 449, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: This paper exploits the introduction of the National Minimum Wage (NMW) in Britain and subsequent increases in the NMW to identify the effects of minimum wages on productivity. We find that the NMW increased average labour costs for companies that tend to employ low paid workers, both upon the introduction of the NMW and more recently following the Great Recession when many workers experienced pay freezes or wage cuts, but the NMW continued to rise. We find evidence to suggest that companies responded to these increases in labour costs by raising labour productivity. These labour productivity changes did not come about via a reduction in firms' workforce or via capital-labour substitution. Rather they were associated with increases in total factor productivity, consistent with organisational change, training and efficiency wage responses to increased labour costs from minimum wages.

Keywords: minimum wage; labour costs; productivity; firm behaviour (search for similar items in EconPapers)
JEL-codes: J08 J31 J38 L25 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Raising the standard: Minimum wages and firm productivity (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:449

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