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dc.titleMinimum Wage, Business Dynamism, and the Life Cycle of Firms
dc.contributor.authorLuduvice, André Victor D.
dc.contributor.authorMartinez, Tomás R.
dc.contributor.authorSollaci, Alexandre B.
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageBrazil
dc.date.available2024-03-11T00:03:00
dc.date.issue2024-03-11T00:03:00
dc.description.abstractThis paper studies the effects of the minimum wage on the life cycle of firms. We first build a tractable model where heterogeneous firms have labor market power, invest in innovation, and choose formal or informal sectors. The model predicts that a minimum wage hike not only shrinks young and low-productivity firms but also lowers incentives to innovate, resulting in lower life cycle growth. We then test the predictions of the model using Brazilian administrative and census data leveraging the variation in exposure across establishments and municipalities to the large increase in the minimum wage between 1999 and 2010. At the establishment level, an increase in the minimum wage: i) decreases the growth rates of small and young establishments and ii) increases the growth rates of old and large establishments. When analyzing exposed municipalities, we observe an increase in the earnings of workers in both the formal and informal sectors, as well as informal employment. Our findings suggest that the minimum wage is a possible explanation for the decline in the importance of young establishments and business dynamism in Brazil.
dc.format.extent53
dc.identifier.doihttp://dx.doi.org/10.18235/0012849
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Minimum-Wage-Business-Dynamism-and-the-Life-Cycle-of-Firms.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectMinimum Wage
dc.subjectSmall Business
dc.subjectLabor
dc.subjectLabor Force
dc.subjectWage
dc.subjectLabor Market
dc.subjectInformal Economy
dc.subjectProductivity
dc.subjectEconomy
dc.subject.jelcodeJ38 - Public Policy
dc.subject.jelcodeJ42 - Monopsony • Segmented Labor Markets
dc.subject.jelcodeE24 - Employment • Unemployment • Wages • Intergenerational Income Distribution • Aggregate Human Capital • Aggregate Labor Productivity
dc.subject.jelcodeE26 - Informal Economy • Underground Economy
dc.subject.jelcodeL25 - Firm Performance: Size, Diversification, and Scope
dc.subject.keywordsMonopsony;Business Dynamism;Firm Heterogeneity;Minimum Wage;Informality
idb.identifier.pubnumberIDB-WP-01578
idb.operationRG-K1198
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