Working Paper: CEPR ID: DP16823
Authors: Effrosyni Adamopoulou; Francesco Manaresi; Omar Rachedi; Emircan Yurdagul
Abstract: Minimum wages alter the allocation of firm-idiosyncratic risk across workers. To establish this result, we focus on Italy, and leverage employer-employee data matched to firm balance sheets and hand-collected wage floors. We find a relatively larger pass-through of firm-specific labor-demand shocks into wages for the workers whose earnings are far from the floors, but who are employed by establishments intensive in minimum-wage workers. We study the welfare implications of this fact using an incomplete-market model. The asymmetric pass-through uncovers a novel channel which tilts the benefits of removing minimum wages toward high-paid employees at the expense of low-wage workers.
Keywords: firm-specific shocks; passthrough; minimum wages; linked employer-employee data; general equilibrium; complementarities
JEL Codes: E24; E25; E64; J31; J38; J52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum wages (J38) | allocation of firm-idiosyncratic risk (G32) |
| allocation of firm-idiosyncratic risk (G32) | asymmetric passthrough of firm-specific labor demand shocks into wages (J29) |
| asymmetric passthrough of firm-specific labor demand shocks into wages (J29) | wages of workers close to the minimum wage (J38) |
| asymmetric passthrough of firm-specific labor demand shocks into wages (J29) | significant wage adjustments for high-paid workers (J31) |
| one-standard deviation increase in the minimum wage bite (J38) | reduction in nominal wage growth for high-paid workers (J39) |
| passthrough of productivity shocks into wages (J39) | concentrated among high-wage workers employed in minimum-wage-intensive establishments (J39) |