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Minimum wages and firm value

Bell, Brian and Machin, Stephen (2016) Minimum wages and firm value. CEP Discussion Paper (1404). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

How does the value of a firm change in response to a minimum wage hike? The evidence we have to date is not well-suited to answer this question, principally because events that have been studied are not completely unknown to the stock market or have uncertainty associated with them. This paper exploits the announcement of a sizeable change in the minimum wage in the UK that was both totally unanticipated and free of uncertainty. The stock market response of employers of minimum wage workers is examined in an event study setting, looking at minute-by-minute changes surrounding the announcement and at cumulative abnormal returns on a daily basis before and after the announcement. The analysis uncovers significant falls in the stock market value of low wage firms. The size of the fall in value is compared to the fall in profitability in response to the wage cost shock that will be induced by the announcement and is seen to be of a comparable magnitude.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2016 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 09 May 2016 13:49
Last Modified: 18 Oct 2019 23:26
Funders: Economic and Social Research Council, Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/66415

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