Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203233
Authors: 
Babiak, Mykola
Chorna, Olena
Pertold-Gebicka, Barbara
Year of Publication: 
2019
Series/Report no.: 
IES Working Paper 14/2019
Abstract: 
In this paper, we investigate how the increase in minimum wages affect firm profitability. We focus on the firm-level panel data in Poland, where minimum wage growth remained stable and averaged around 4 percent between 2003 and 2007 but accelerated to 20 percent in 2008. Implementing a difference-in-difference approach in this quasi-experimental setting, we find that the minimum wage increase contributed positively to average wages and negatively to firm profitability. Intuitively, the increased labor costs due to a higher wage floor directly reduce profits in the absence of labor demand adjustments. We formally test and confirm validity of these empirical predictions in a simple theoretical model of a profit maximizing firm.
Subjects: 
Minimum wage
firm profitability
difference-in-difference
JEL: 
C21
J23
L25
Document Type: 
Working Paper
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