Minimum Wage Increase and Firm Profitability: Evidence from Poland
| Author(s): | Mykola Babiak MA, M.A Olena Chorna , |
|---|---|
| Type: | IES Working Papers |
| Year: | 2019 |
| Number: | 14 |
| ISSN / ISBN: | |
| Published in: | IES Working Papers 14/2019 |
| Publishing place: | Prague |
| Keywords: | Minimum wage, firm profitability, difference-in-difference |
| JEL codes: | C21, J23, L25 |
| Suggested Citation: | Babiak M. and Chorna O. (2019): "Minimum Wage Increase and Firm Profitability:Evidence from Poland" IES Working Papers 14/2019. IES FSV. Charles University. |
| 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 butaccelerated 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 theseempirical predictions in a simple theoretical model of a profit maximizing firm. |
| Downloadable: |
wp_2019_14_chorna_babiak |
