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Title: What Do Establishments Do When Wages Increase? Evidence from Minimum Wages in the United States

Citation Type: Miscellaneous

Publication Year: 2019

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Abstract: This paper investigates how establishments adjust their production on various margins when wage rates rise. Exploiting state-by-year variation in minimum wage laws, I analyze U.S. manufactur- ing plants’ responses over a 23-year period using restricted-access Census Microdata. A one-percent increase in production workers’ hourly wages reduces total production worker hours by 0.7 percent and increases capital investment on machines by 2.7 percent. Manufacturing plants reduce average hours per production worker more than number of production workers. The elasticity of substitution between capital and labor is 0.85. In addition, when wage rates increase, manufacturing plants are also more likely to exit. Finally, suggestive evidence shows that when minimum wage laws increase the wages of some of the establishments in a firm, the firm also increases the wages for its other establishments.

Url: https://economics.illinois.edu/sites/default/files/assoc-files/285/wage_and_firms_chen_Oct2019.pdf

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Authors: Chen, Yuci

Publisher: University of Illinois at Urbana-Champaign

Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure

Countries: United States