Thursday 1 August 2019

Who pays for the minimum wage?

This question is asked in a new article, Who Pays for the Minimum Wage?, in the latest issue (Vol. 109, No. 8, August 2019) of the American Economic Review.

The paper is by Peter Harasztosi and Attila Lindner and looks at the margins along which firms responded to a large and persistent minimum wage increase in Hungary. It finds that the employment elasticities are small, but negative.

The abstract reads,
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.

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