Who Pays for the Minimum Wage?
AbstractThis paper provides a comprehensive assessment of the margins along which firms responded to a large and persistent minimum wage increase in Hungary. We show that employment elasticities are negative but small even four years after the reform; that around 75 percent of the minimum wage increase was paid by consumers and 25 percent by firm owners; that firms responded to the minimum wage by substituting labor with capital; and that disemployment effects were greater in industries where passing the wage costs to consumers is more difficult. We estimate a model with monopolistic competition to explain these findings.
CitationHarasztosi, Peter, and Attila Lindner. 2019. "Who Pays for the Minimum Wage?" American Economic Review, 109 (8): 2693-2727. DOI: 10.1257/aer.20171445
- J23 Labor Demand
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- J38 Wages, Compensation, and Labor Costs: Public Policy
- L13 Oligopoly and Other Imperfect Markets