Who Pays for the Minimum Wage?
Peter Harasztosi, Attila Lindner
American Economic Review · 2019 · Volume 109 · Issue 8
Abstract
This paper provides a comprehensive assessment of the margins along which firms responded to a large and persistent minimum wage increase in Hungary. We show that employment elasticities are negative but small even four years after the reform; that around 75 percent of the minimum wage increase was paid by consumers and 25 percent by firm owners; that firms responded to the minimum wage by substituting labor with capital; and that disemployment effects were greater in industries where passing the wage costs to consumers is more difficult. We estimate a model with monopolistic competition to explain these findings.
Keywords
Labor Demand, Human Capital, Skills, Occupational Choice, Labor Productivity, Wage Level and Structure, Wage Differentials, Wages, Compensation, and Labor Costs: Public Policy, Oligopoly and Other Imperfect Markets
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