TY  - JOUR
AU  - Draca,Mirko
AU  - Machin,Stephen
AU  - Reenen,John Van
TI  - Minimum Wages and Firm Profitability
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13996
PY  - 2008
Y2  - May 2008
UR  - http://www.nber.org/papers/w13996
L1  - http://www.nber.org/papers/w13996.pdf
N1  - Author contact info:
Mirko Draca
London School of Economics
Centre for Economic Performance
Houghton Street
London WC2A 2AE
ENGLAND
E-Mail: m.draca@lse.ac.uk

Stephen Machin
London School of Economics
Centre for Economic Performance
Houghton Street
London WC2A 2AE
ENGLAND
E-Mail: s.machin@ucl.ac.uk

John Van Reenen
Department of Economics
London School of Economics
Centre for Economic Performance
Houghton Street
London WC2A 2AE
UNITED KINGDOM
Tel: 00 44 207/955-6976
Fax: 00 44 207/955-6848
E-Mail: j.vanreenen@lse.ac.uk
AB  - Although there is a large literature on the economic effects of minimum wages on labour market outcomes (especially employment), there is much less evidence on their impact on firm performance. In this paper we consider a very under-studied area - the impact of minimum wages on firm profitability. The analysis exploits the changes induced by the introduction of a national minimum wage to the UK labour market in 1999, using pre-policy information on the distribution of wages to construct treatment and comparison groups and implement a difference in differences approach. We report evidence showing that firm profitability was significantly reduced (and wages significantly raised) by the minimum wage introduction. This emerges from separate analyses of two distinct types of firm level panel data (one on firms in a very low wage sector, UK residential care homes, and a second on firms across all sectors). We find that net entry rates have fallen, but that the changes in exit and entry rates are statistically insignificant.
ER  -