Are Firms Willing to Pay Lower Wages? A Quasi-Experiment on Subminimum Wage Policy

Petri Böckerman (), Toni Juuti (), Tuomas Kosonen and Henri Keränen

No 348, Working Papers from Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE

Abstract: We examine a subminimum wage policy in the Finnish retail trade sector during 1993–1998 that allowed ?rms to pay subminimum wages to newly hired workers under the age of 25. This quasi-experiment enables us to compare wages for new hires in retail trade with those in similar industries. Despite the ongoing recession, the policy was adopted by ?rms sparingly, with most eligible workers being hired at the standard minimum wage. We propose that wage norm at the standard minimum wage creating indirect costs for ?rms paying subminimum wage would be the mechanism why the take-up of subminimum wage by ?rms remained low. We provide empirical evidence supporting this mechanism, most notably the excess mass at the standard minimum wage in the wage distribution of eligible workers. Many ?rms that paid the subminimum wage also reverted back to paying the standard minimum wages for subsequent hires.

Keywords: minimum wages; subminimum wage; wage determination; fairness; employment; firms (search for similar items in EconPapers)
JEL-codes: D22 J31 J38 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2024-11-13
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Related works:
Working Paper: Are Firms Willing to Pay Lower Wages? A Quasi-Experiment on Subminimum Wage Policy (2024)
Working Paper: Are Firms Willing to Pay Lower Wages? A Quasi-Experiment on Subminimum Wage Policy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:pst:wpaper:348

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