Raising the standard: Minimum wages and firm productivity

Abstract

This paper exploits the introduction of the National Minimum Wage (NMW) in Britain and subsequent increases in the NMW to identify the effects of minimum wages on productivity. We find that the NMW increased average labour costs for companies that tend to employ low paid workers, both upon the introduction of the NMW and more recently following the Great Recession when many workers experienced pay freezes or wage cuts, but the NMW continued to rise. We find evidence to suggest that companies responded to these increases in labour costs by raising labour productivity. These labour productivity changes did not come about via a reduction in firms' workforce or via capital-labour substitution. Rather they were associated with increases in total factor productivity, consistent with organisational change, training and efficiency wage responses to increased labour costs from minimum wages.

When Less is More: The Impact of the Regulation on Standard Workweek on Labor Productivity in South Korea

“…We use the natural log (log, hereafter) of the annual output per worker as a dependent variable as the distribution of the annual output per worker is heavily skewed to the right. In particular, using the log of output measure per worker as a dependent variable is consistent with recent literature examining the impact of labor regulation on labor productivity of establishments (Autor, Kerr, & Kugler, ; Riley & Bondibene, ). Furthermore, using log transformation allows us to readily interpret the coefficient estimate as a change in percentage terms.…”

Do minimum wages increase job satisfaction? Micro‐data evidence from the new German minimum wage

“…A prominent reason why minimum wages do not lead to a decrease in labor demand is not only a rise in labor costs, but also an increase in productivity (Metcalf, ; Schmitt, ). In fact, a recent study by Riley and Rosazza Bondibene () presents firm‐level evidence that both the initial British minimum wage introduction and the subsequent minimum wage increases in the aftermath of the crisis caused productivity to increase. Theoretical reasons for this growth in labor productivity are (Riley and Rosazza Bondibene, ): (1) substitution effects when firms replace labor inputs by capital, (2) firms increasing investments in training (Acemoglu and Pischke, ; Arulampalam et al ., ), (3) efficiency‐enhancing human resource practices (Hirsch et al ., ), (4) higher performance standards of the firm, and (5) increased worker effort in response to receiving higher or fair wages (Akerlof, ; Owens and Kagel, ).…”

Training and minimum wages: first evidence from the introduction of the minimum wage in Germany

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