Publication detail

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
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


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