 Small Steps Toward A Much Better World This piece is by DuckKi Cho and is titled “Downward Wage Rigidity and Corporate Investment”:
Firms reduce investment when facing downward wage rigidity, the inability or unwillingness to adjust wages downward. To document this behavior, I exploit staggered state-level changes in minimum wage laws as an exogenous variation in downward wage rigidity. Following a 1-standard-deviation increase in the minimum wage, firms reduce their investment rate (the ratio of capital expenditure to capital stock) by 3.08 percentage points. The negative impact is more acute for firms with a higher fraction of minimum wage workers, stronger employment protections, or higher labor intensity. The investment reductions cannot be explained by labor adjustment under capital-labor complementarities. Rather, I identify the aggravation of debt overhang and increased operating leverage crowding out debt financing as two mechanisms by which downward wage rigidity impedes investment. The findings highlight the unintended consequences of minimum wage policies on corporate investment.
From the Journal of Law and Economics. I fear that for the next thirty years people still will be claiming that Card and Krueger showed that minimum wage hikes do not damage employment. After numerous recent revisions, many of them catalogued here, that is no longer such a plausible belief.
The post The weight of research opinion against minimum wage hikes continues to shift appeared first on Marginal REVOLUTION.
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