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Minimum wages and firm profitability

Draca, Mirko, Machin, Stephen and Van Reenen, John (2011) Minimum wages and firm profitability. American Economic Journal: Applied Economics, 3 (1). pp. 129-151. ISSN 1945-7782

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Abstract

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.

Item Type: Article
Official URL: http://www.aeaweb.org/aej-applied/index.php
Additional Information: © 2011 American Economic Association
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HG Finance
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 08 Apr 2011 11:20
URL: http://eprints.lse.ac.uk/33930/

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