Conference Paper
Firm-Level Effects of Minimum Wages
No.
ERF_31_LB26
Publisher
ERF
Date
March, 2025
Topic
J. Labor and Demographic Economics
What are the supply-side effects of minimum wages? Our paper exploits the quasi-natural experiment that Turkish government introduced an increase to minimum wages by 33.5% in 2016. This sudden event provides a unique opportunity to study the effects of cost-related shocks on firm outcomes that can be directly passed. Using comprehensive product-level PRODCOM data covering manufacturing industry firms that employ more than twenty employees, we first document the unit price effects. Our findings show that while minimum wage shock passes through into weighted firm-level prices by about 1.8% on average against 10% minimum wage share increase, this effect disappears after two consequent years. These findings are also similar when price pass-through model at firm-product level is estimated. In addition, the more firms operate in competitive industries, the less they pass their cost to the prices. Second, we explore broader economic consequences on sales, production, employment, and profit. We find that unlike the prices these outcomes negatively persist after minimum wage shock. Finally, the profit rate decrease is stronger in industries with relatively high market power.
Authors
Yusuf Emre Akgündüz
Executive Director, Central Bank, Republic of Turkiye
Authors
Uğur Aytun
Assistant Professor, Kutahya Dumlupinar University
Research Fellows
Seyit Mümin Cilasun
Professor of Economics, TED University