Minimum Wage Hikes Research Articles

The Effect of State Minimum Wage Increases on CEO Compensation: Evidence of Labor Donation in Nonprofit Organizations

ABSTRACT In this paper, we test the “labor donation” hypothesis, which posits that intrinsically motivated individuals willingly accept lower compensation to work in nonprofit organizations (NPOs). We do so by examining the response of NPO CEO compensation to exogeneous increases in labor costs resulting from state-level minimum wage hikes, finding these increases are followed by declines in CEO compensation. Consistent with the labor donation hypothesis, we find the declines in compensation are larger for CEOs who we expect to have greater intrinsic motivation, i.e., those whose NPOs are headquartered in counties with higher levels of religiosity, in counties with greater levels of social capital, and those who work for a local NPO as opposed to a national NPO. In contrast to the decline in compensation we observe for NPO CEOs, we do not find an impact on for-profit CEO compensation. JEL Classifications: G3; J33; J38; L3; L3.

The Impact of Minimum Wage Policy on Alcohol Use Disorder: A Quasi-Experimental Study in South Korea.

South Korea's 2018 minimum wage hike was examined for its impact on potential alcohol use disorders among affected individuals, using data from the Korea Welfare Panel Study (2015-2019). The study sample was restricted to workers aged 19-64 employed over the study years. The treatment group was identified as those below minimum wages, and the control group as those earning more than minimum wages in 2016-2017 (n=3,117 control, n=578 treatment). Using outcomes derived from the Alcohol Use Disorders Identification Test, our results from difference-in-differences models showed that the 2018 wage hike was linked to a 1.9% increase in the 'high risk' of alcohol use disorder and a 3.6% rise in hazardous consumption in the treatment group. Notably, the effects were more pronounced among men and those aged 50-64. Additionally, we confirmed that the spillover effects extended to workers earning up to 20% above the minimum wage. This study underscores the unintended substance use risk of minimum wage policies in the East Asian context. As wage policies are implemented, integrated public health campaigns targeting at-risk groups are required.

The effects of the job stabilization fund on employment

ABSTRACT The job stabilization fund in Korea was introduced to mitigate the negative impacts of a sharp increase in the minimum wage in 2018. This study estimates the employment effect of the fund by considering that only firms with fewer than 30 employees are eligible for the fund and using an empirical model that allows for interaction between exposure to the minimum wage (treatment intensity) and a policy dummy variable in a standard DID model. The estimation results show that the fund greatly alleviates the adverse effects of the minimum wage increase on employment: firms not receiving the fund significantly decrease employment for all cases, while those receiving it either slightly decrease or even increase employment in response to the minimum wage hike in 2018.

The Impact of the Crisis Induced by the Conflict in Ukraine on Firms: Evidence from North Macedonia

Abstract This paper evaluates the impact of the Ukraine conflict-induced crisis on firms in North Macedonia using data from a survey conducted with 112 firms in April and May 2023. Through descriptive statistics and probit regression analysis, we find that small firms in low-wage sectors predominantly coped with the crisis by raising prices of final products and services, followed by cost-cutting measures. Larger firms tended to invest in self-electricity generation or energy-saving equipment. Our results show that firms with higher energy cost shares increased final prices more but experienced decreased competitiveness. Firms not addressing rising costs did not consistently pass these costs onto prices or maintain competitiveness, except for labor costs. Labor cost increases, such as from minimum wage hikes, may lead to cost-push inflation unless firms absorb these costs at the expense of profits.

Madam Yellen is right about minimum wage policies: evidence from millions of sole proprietors

During her nomination hearing, Janet Yellen defended the benefits of a higher minimum wage (Question 66 and follow-up). This study analyzes the impact of minimum wage policies on the profitability of sole proprietors by using a dataset of 430 million reported net incomes with the IRS from 2004 to 2018. Three methods are used to examine the relationship between minimum wage increases and net income for sole proprietors: A panel regression framework that includes all counties, comparing contiguous border county-pairs, and a difference-in-differences approach. We find that minimum wage hikes are associated with a higher net income for sole proprietors, with estimated elasticity between 0.15 and 0.2.

Minimum wage and self-employed business owners: Evidence from South Korea

This study examines the influences of minimum wage on self-employment exits, using recent changes in the minimum wage level in South Korea. Using the cross-industry variation on the impact of the minimum wage—the proportion of workers whose wages are below the minimum wage in the upcoming year—combined with individual longitudinal data, I estimate the model of self-employment exits. Overall, the estimates show that the minimum wage hike has no significant impact on self-employed workers. However, it increases the likelihood of the business closing for the self-employed who hire employees. The results imply that a ten percent increase in the minimum wage raises the exit probability by 2.6 percentage points, which is 30.9 % of the average exit rate for those with employees. Moreover, the exits are significantly associated with the transition to non-employment.

Minimum Wage Hike and Multinational Enterprises' Employment: Firm-Level Evidence from South Korea

This study examines the impact of a consecutive double-digit hike in Korea's minimum wage from 2018 to 2019 after the impeachment of President Park Geun-hye as an exogenous shock on the employment of multinational enterprises (MNEs). Notably, this topic has received limited attention in extant literature. Using a firm-level dataset covering the period 2006-2020, we find that MNEs respond to increases in the minimum wage by reducing their total employment size, including both regular and temporary workers. Furthermore, the effects are heterogeneous and depend on the participation of international trade and strategic partnerships. Our findings indicate that the minimum wage policy can even lead to a decrease in high-quality jobs within high-productivity companies, underscoring the need to adjust the pace of such increases to mitigate their side effects on the labor market.

The impact of minimum wage increase on suicidal ideation in South Korea: a difference-in-differences analysis using nationally representative panel data.

South Korea had the highest suicide rates in the OECD and one of the largest (16.4%) increases in the minimum wage in 2018. Prior studies have provided evidence that increases in minimum wage reduce suicide rates in the population, but no study examined the effects of the policy change on individual-level suicidal behaviour. Our study sample was built using the 2015-2019 waves of the Korean Welfare Panel Survey, a population-representative longitudinal survey. The sample consisted of 5146 participants, including those earning above minimum wage (control) and minimum wage earners (treatment) based on their 2018/19 earnings. The outcome of the study was suicidal ideation, which is an important precursor to other suicidal behaviours, and was captured using self-reported measures. We examined the impact of the 2018 minimum wage hike in Korea on suicidal ideation, using a difference-in-differences design. The minimum wage increase was associated with a 1.6% points reduction (95% CI: -2.8% to -0.5%) in self-reported suicidal ideation. Stronger policy effects were shown among women and older age groups. Our study demonstrates that public policies employing a population-based approach, such as increasing minimum wages, could serve as an effective intervention to mitigate suicidal ideation among low-income workers.

2018년 최저임금 인상이 기업의 임금, 고용 및 수익성에 미친 영향

2018년 최저임금 인상이 기업의 임금, 고용 및 수익성에 미친 영향

Consumption Response to Minimum Wages: Evidence from Chinese Households

Abstract The paper evaluates the impact of the Chinese minimum wage policy on consumption of low-wage households for the period 2002-2009. Using a representative panel of urban households, we find that the consumption response to minimum wage income hikes increases in the share of minimum wage income in total household income. In particular, poorer households fully consume their additional income, while meaningful negative employment effects are absent. The large marginal propensity to consume is driven by households with at least one child, while poor, childless households save two-thirds of a minimum wage hike. The expenditure increase is concentrated in health care and education with potentially long-lasting benefits to household welfare.

Impact of the minimum wage increase on intimate partner violence (IPV): a quasi-experimental study in South Korea

BackgroundPoverty is associated with intimate partner violence (IPV), but whether exogenous increases in wage could reduce IPV among low-income women is still unclear. We examined whether the 2018 minimum wage...

What we pay in the shadows: Labor tax evasion, minimum wage hike and employment

The interactions between minimum wage policy and tax evasion remain largely unknown. We study the firm-level employment effects of a large and biting minimum wage increase in the context of widespread wage underreporting. We apply machine learning to classify firms as either tax-compliant or tax-evading. We then show that firms engaged in labor tax evasion are insensitive to the minimum wage shock. Our results indicate that these firms use wage underreporting as an adjustment margin, converting part of their formerly undeclared cash payments into official wages. Increasing the minimum wage improves tax enforcement, but comes at the cost of negative employment consequences for compliant firms.

The Political economy of the minimum wage

I evaluate the effects of the 2016 minimum wage hike in Peru on the approval of government performance. My identification strategy exploits the regional heterogeneity in the share of workers directly affected by the increase to implement a series of difference-in-differences specifications. For every percentage point increase in the share of treated workers, the approval of the central government (i.e., the president) also increases by a percentage point. I find a partial spillover effect to other levels of government. These results are robust to a number of alternative specifications and falsification tests, and cannot be explained by the results of the 2016 presidential elections. My findings suggest that improvements in subjective living conditions and non-negative effects on observed labor market performance are the main mechanisms behind these causal effects.

The impact of agricultural minimum wages on worker flows in South Africa

AbstractThis paper is the first to provide estimates of how minimum wages affect worker flows and employment growth rates in an employment scarce developing country context. We investigate the effects of a large, exogenous increase in agricultural minimum wages in South Africa. We find that changes occurred primarily among non‐seasonal workers. Non‐seasonal agricultural employment growth decreased in the initial periods after the minimum wage hike. This was mainly driven by slower rates of entry. The effect on the rate of entry decreases over time. While farms also responded by shedding non‐seasonal workers at higher rates, this negative effect was limited to 1 year directly after the minimum wage hike. Employment growth recovers 4 years after the policy shock, indicating that firms adjusted relatively quickly despite the large legislated minimum wage increase. Seasonal employment growth and rates of entry and exit of seasonal workers were for the most part unaffected. Descriptive statistics, however, suggest a slight compositional change among seasonal workers: Farms replaced the worst paid seasonal workers with other low‐income workers who were slightly better paid and presumably more productive.

Impact of the minimum wage increase on smoking behaviour: A quasi-experimental study in South Korea

BackgroundWhile there's a growing body of research studying the health effects of minimum wage increases, evidence of its impact on smoking is inconsistent. Using nationally representative statistics, our quasi-experimental study examines the impacts of South Korea's 2018 minimum wage increase on smoking patterns, offering a distinctive context due to the significant wage growth and the country's permissive smoking culture. MethodsUsing the Korean Welfare Panel Study (KOWEPS), we conducted a difference-in-differences analysis using two-way fixed effect (TWFE) and Callaway and Sant'Anna Difference-in-differences (CSDID) methods. The study sample (n = 3494) included individuals aged 19–64 at baseline in 2016, and employed in the entire study period (2016–2019). ResultsThe model results suggest a roughly 2% increase in the probability of current smoking with an insignificant impact on average daily cigarette consumption following the 2018 minimum wage increase in Korea. These effects were most pronounced among men and age groups (45–64). We also found policy effects on those earning up to 150% of the minimum wage. ConclusionIn a culture with widespread acceptance of smoking, an exogenous increase in disposable income due to elevated minimum wage might enhance vulnerability to societal pressure to smoke. Although TWFE and CSDID both suggest the same overall trend, the latter approach allows a more detailed examination by acknowledging heterogeneous treatment effects. These results could guide policymakers to contemplate the potential for increased smoking resulting from minimum wage hikes in societies where tobacco use is common, and accordingly strategize anti-smoking public health initiatives.

The unintended consequence of minimum wage hikes: Evidence based on firms' pollution emission

This study examines the impact of an unanticipated consequence of minimum wage hikes on firms' pollution emissions in China by exploiting policy discontinuities at county borders to control for spatial heterogeneity. Using a unique dataset that combines industrial firms' emission records and county-level minimum wages, we document this notable consequence: higher minimum wages raise pollution emission intensity of Chinese manufacturing firms—the SO2 and COD emission intensity elasticities with regard to minimum wages being 0.274 and 0.262, respectively. The increased pollution intensity mainly results from the high consumption of dirty energy, insufficient pollution treatment facilities, and a failure in green technology upgrading. Furthermore, the pollution response is more pronounced in financially constrained firms as well as firms in more competitive and labor-intensive industries, while stringent environmental regulation somewhat alleviates this effect.

Does minimum wages affect executive compensation? – Evidence from China

Based on the urban minimum wage data in China from 2011 to 2021 and the Chinese listed firm data, this study empirically examined the impact of the minimum wage hike on corporate executive compensation. We found that the increase in the minimum wage significantly increased executive compensation. This conclusion still holds through multiple endogenous analyses. Labor expenditure and investment expenditure are the main mechanisms by which minimum wage hikes lead to increases in executive compensation. The impact of minimum wages on executive compensation is more pronounced in competitive industries and labor-sensitive companies, but less pronounced in companies with stricter internal and external monitoring. Further, we found that a minimum wage hike will reduce pay-performance sensitivity and widens the pay gap between executives and employees.

Minimum Wage Hikes and Technology Adoption: Evidence from U.S. Establishments

Abstract This article studies the effects of state minimum wage increase on information technology (IT) adoption at the establishment level in the United States. Our results show that treatment establishments on average allocate between $10,328 and $66,808 more per year to their IT budgets during the first 3 years after experiencing significant state minimum wage increases. Additional evidence shows that state minimum wage increases on average lead to an economically small decrease in employment. The estimated employment effect is larger for establishments that have more incentives to automate labor. Our results suggest that establishments adopt technology to countervail increased labor costs.

How Do Changes in the Minimum Wage Affect Household Consumption?

Minimum wage hikes increase the consumption of affected households. This paper studies the structure of the additional consumption across various low-income household types. Using a unique set of cross-sectional data at the household level in the Czech Republic, I simulate the impact on consumption categories of additions to disposable income due to minimum wage increases between 2011 and 2019. My findings suggest that the additional income is predominantly allocated to essentials, despite a drop in their budget share. Consumption of addictive goods represents a luxury for low-income households, among whom the demand is even more elastic for those with children. Similarly, health and education expenditures are substantially income sensitive for households with children.

What We Pay in the Shadow: Labor Tax Evasion, Minimum Wage Hike and Employment

The interactions between minimum wage policy and tax evasion remain largely unknown. We study firm-level employment effects of a large and biting minimum wage increase in Latvia conditional on labor tax compliance. The Latvian labor market is characterized by the prevalence of envelope wages, i.e., unreported cash-in-hand complements to the official wage. We apply machine learning to classify firms between compliant and tax-evading using a unique combination of administrative and survey data. We then show that firms engaged in labor tax evasion are insensitive to the minimum wage shock. Our results suggest that these firms use wage underreporting as an adjustment margin, converting (part of ) the envelope into legal wage. Increasing minimum wage contributes to tax rule enforcement, but this comes at the cost of negative employment consequences for compliant firms.