Minimum Wage and Financially Distressed Firms: Another One Bites the Dust

22 Pages Posted: 29 Jul 2020

See all articles by Fernando Alexandre

Fernando Alexandre

University of Minho - Department of Economics

Pedro Miguel Avelino Bacao

Faculdade de Economia - Universidade de Coimbra

Joao Cerejeira

University of Minho - Economic Policies Research Unit (NIPE); University of Minho - Department of Economics

Hélder Costa

University of Minho

Miguel Portela

University of Minho

Abstract

Since late 2014, Portuguese Governments adopted ambitious minimum wage policies. Using linked employer-employee data, we provide an econometric evaluation of the impact of those policies. Our estimates suggest that minimum wage increases reduced employment growth and profitability, in particular for financially distressed firms. We also conclude that minimum wage increases had a positive impact on firms' exit, again amplified for financially distressed firms. According to these results, minimum wage policies may have had a supply side effect by accelerating the exit of low profitability and low productivity firms and, thus, contributing to improve aggregate productivity through a cleansing effect.

Keywords: minimum wage, financially distressed firms, productivity

JEL Classification: E24, J38, L25

Suggested Citation

Alexandre, Fernando and Bacao, Pedro Miguel Avelino and Cerejeira Silva, Joao and Costa, Hélder and Portela, Miguel, Minimum Wage and Financially Distressed Firms: Another One Bites the Dust. IZA Discussion Paper No. 13526, Available at SSRN: https://ssrn.com/abstract=3660273 or http://dx.doi.org/10.2139/ssrn.3660273

Fernando Alexandre (Contact Author)

University of Minho - Department of Economics ( email )

Braga 4710-057
Portugal

Pedro Miguel Avelino Bacao

Faculdade de Economia - Universidade de Coimbra ( email )

Portugal

Joao Cerejeira Silva

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

University of Minho - Department of Economics ( email )

Braga 4710-057
Portugal

Hélder Costa

University of Minho

Braga, 4700
Portugal

Miguel Portela

University of Minho

Braga, 4700
Portugal

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