We study the impact of minimum wages on firm profitability, exploiting the changes induced by the introduction of a UK national minimum wage in 1999. We use pre-policy information on the distribution of wages to implement a difference-in-differences approach. Minimum wages raise wages, but also significantly reduce profitability (especially in industries with relatively high market power). This is consistent with a simple model where wage gains from minimum wages map directly into profit reductions. There is some suggestive evidence of longer run adjustment to the minimum wage through falls in net entry rates. (JEL J31, J38, L25)
Draca, Mirko, Stephen Machin, and John Van Reenen.
"Minimum Wages and Firm Profitability."
American Economic Journal: Applied Economics,
Wage Level and Structure; Wage Differentials
Wages, Compensation, and Labor Costs: Public Policy
Firm Performance: Size, Diversification, and Scope