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.

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Mirko Draca, Stephen Machin and John Van Reenen

1 January 2011

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American Economic Journal: Applied Economics 3(1) , pp.129-151, 2011

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DOI: 10.1257/app.3.1.129

https://www.aeaweb.org/articles?id=10.1257/app.3.1.129

This Journal article is published under the centre's Labour markets programme.

This publication comes under the following theme: Labour market institutions and policies