Firm Size and Corporate Political Influence

Abstract

In a setup that exhibits an inverse relationship between citizens' employment and the minimum wage offered to employed citizens, democratic elections yield either a low or a high minimum wage, depending on the political salience of minimum wage. In either case, a corporation can proactively set its workforce size in order to push the minimum wage further downward. We show that the capacity for a large workforce enhances corporate political influence. Yet, we also show that the corporation chooses to downsize in equilibrium. By doing so, the corporation decreases the share of citizens who demand a higher minimum wage, while keeping up the pressure for a lower minimum wage from the unemployed. This boosts corporate profits at the expense of aggregate production and citizens' consumption.

Keywords: voting, political influence, corporate strategy, firm size

JEL Classification: D21, D72, L25