Employer Responses to Minimum Wage Policy
Tuesday, Jan. 5, 2021 3:45 PM - 5:45 PM (EST)
- Chair: Daniel Aaronson, Federal Reserve Bank of Chicago
What Do Establishments Do When Wages Increase? Evidence from Minimum Wage in the United States
AbstractI investigate how establishments adjust their production plans on various margins when wage rates increase. Exploiting state-by-year variation in minimum wage, I analyze U.S. manufacturing plantsâ€™ responses over a 23-year period. Using instrumental variable method and Census Microdata, I find that when the hourly wage of production workers increases by one percent, manufacturing plants reduce the total hours worked by production workers by 0.7 percent and increase capital expenditures on machinery and equipment by 2.7 percent. The reduction in total hours worked by production workers is driven by intensive-margin changes. The estimated elasticity of substitution between capital and labor is 0.85. Following the wage increases, no statistically significant changes emerge in revenue, materials or total factor productivity. Additionally, I find that when wage rates increase, establishments are more likely to exit the market. Finally, I provide evidence that when the minimum wage increases the wages of some of the establishments in a firm, the firm also increases the wages for its other establishments.
Across-Country Wage Compression in Multinationals
AbstractMany employers link wages at the firm's establishments outside of the home region to the level at headquarters. Multinationals that anchor-to-the headquarters also transmit wage changes arising from shocks to minimum wages and exchange rates in the home country/state to their foreign establishments. Such multinationals fire more low-skill workers and hire fewer new workers abroad after a permanent (minimum wage-induced) foreign establishment wage increase originating in shocks to headquarter wages, but not after a temporary (exchange rate-induced) one. We show this using data on 1,060 multinationals' establishments across the world and in employee-level data on the same employers' establishments in Brazil.
University of California-Berkeley
W.E. Upjohn Institute
- J2 - Demand and Supply of Labor
- J3 - Wages, Compensation, and Labor Costs