Minimum Wage and Firm Variety

22 Pages Posted: 4 Oct 2021

See all articles by Priyaranjan Jha

Priyaranjan Jha

University of California, Irvine - Department of Economics

Antonio Rodriguez-Lopez

University of California, Irvine

Date Written: 2021

Abstract

Exploiting minimum-wage variation within multi-state commuting zones, we document a negative relationship between minimum wages and firm variety in the U.S. restaurant and retail trade industries. To explain this finding, we construct a heterogeneous-firm model with a monopsonistic labor market and endogenous firm variety. The decentralized equilibrium underprovides the mass of firms compared to the outcome achieved by a welfare-maximizing planner. A binding minimum wage further reduces the mass of firms, exacerbating the distortion. Workers value employer variety, and thus, by reducing firm variety the minimum wage reduces workers’ welfare even if the average wage increases.

Keywords: minimum wage, number for firms, love of employer variety

JEL Classification: J380, J420

Suggested Citation

Jha, Priyaranjan and Rodriguez-Lopez, Antonio, Minimum Wage and Firm Variety (2021). Available at SSRN: https://ssrn.com/abstract=3932020 or http://dx.doi.org/10.2139/ssrn.3932020

Priyaranjan Jha (Contact Author)

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

Antonio Rodriguez-Lopez

University of California, Irvine ( email )

Campus Drive
Irvine, CA 62697-3125
United States

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