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Raising the Standard: Minimum Wages and Firm Productivity

Author

Listed:
  • Rebecca Riley
  • Chiara Rosazza-Bondibene
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.

Suggested Citation

  • Rebecca Riley & Chiara Rosazza-Bondibene, 2015. "Raising the Standard: Minimum Wages and Firm Productivity," National Institute of Economic and Social Research (NIESR) Discussion Papers 449, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:449
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    minimum wage; labour costs; productivity; firm behaviour;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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