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  5. Firms and Labor Market Institutions
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Firms and Labor Market Institutions

Paper Session

Friday, Jan. 3, 2025 10:15 AM - 12:15 PM (PST)

Hilton San Francisco Union Square, Union Square 1 and 2
Hosted By: Econometric Society
  • Chair: David Card, University of California-Berkeley

Who's Afraid of the Minimum Wage? Measuring the Impacts on Independent Businesses Using Matched U.S. Tax Returns

Nirupama Rao
,
University of Michigan
Max Risch
,
Carnegie Mellon University

Abstract

A common concern surrounding minimum wage policies is their impact on independent businesses, which are feared to be less able to either bear or pass-on cost increases. We examine how independent firms accommodate minimum wage increases along product and labor market margins using a new matched owner-firm-worker panel dataset drawn from the universe of U.S. tax records over a 10-year period. We find that, on average, firms in highly exposed industries do not substantially reduce em- ployment, but instead fully finance the added labor costs with new revenues. Among surviving firms, we even observe small average increases in owner profits. We show, however, that these average gains belie significant heterogeneity by industry and productivity. Among restaurants, the most acutely impacted industry, the minimum wage causes firm exits. Exits are concentrated among the least productive small firms, while the observed profit gains stem from the more productive surviving small restaurants. These findings are consistent with a model of Cournot competition with heterogeneous productivity and fixed production costs. The cost shock and resulting exits winnow the productivity distribution of surviving and entrant firms with demand and workers reallocated to more productive survivors. Following low-earning and young workers, we find that their earnings increase on average, they are no less likely to be employed, and their turnover rates decline when minimum wages rise.

Quantifying the Role of Firms in Intergenerational Mobility

Caue Dobbin
,
Georgetown University
Tom Zohar
,
CEMFI

Abstract

We investigate the role of firms in intergenerational mobility by decomposing the intergenerational elasticity of earnings (IGE) into firm-IGE and individual-IGE using a two-way fixed effects framework. Using data from Israel, we find that the firm component is responsible for 22% of the overall IGE. We then explore potential mechanisms and find that education differences explain a large share of the individual-IGE, while place of residence and demographics are more important for the firm-IGE. Guided by these empirical patterns, we develop a novel method to estimate the role of skill-based sorting and find that it accounts for approximately half of the firm-IGE. Our results provide evidence that the intergenerational transmission of earnings encompasses more than just human capital, and highlight the importance of promoting equal access to high-paying firms and reducing labor market segregation in efforts to enhance equality of opportunity.

Why Do Union Jobs Pay More? New Evidence from Matched Employer-Employee Data

Pierre-Loup Beauregard
,
University of British Columbia
Thomas Lemieux
,
University of British Columbia
Derek Messacar
,
Memorial University
Raffaele Saggio
,
University of British Columbia

Abstract

We use Canadian matched employer-employee data to assess the sources of the union pay premium. After controlling for worker heterogeneity using Abowd, Kramarz, and Margolis (1999) (AKM) two-way fixed effects approach, we find that unionized firms pay about 15 percent more than non-union firms. 40 percent of this gap is linked to productivity differences measured by value added per worker. The remaining gap reflects the union’s ability to extract more rents to workers from a given firm’s value added per worker. We also find that union representation among some of the employees of a firm has a positive spillover effect on the wages of other employees who are not unionized. Our main findings are robust to an extension of the AKM approach where, consistent with union wage compression effects documented in the literature, unions might shrink the returns to some unobservable workers’ characteristics.

How Do Firms Respond to Unions?

Samuel Dodini
,
Norwegian School of Economics
Anna Stansbury
,
Massachusetts Institute of Technology
Alexander Willen
,
Norwegian School of Economics

Abstract

This paper provides a comprehensive assessment of the margins along which firms in Norway respond to increased union density, using legislative changes in the tax deductibility of union dues as a quasi-exogenous shock to firm-level unionization rates. Despite higher personnel costs driven by a union wage premium, the average manufacturing firm increases employment and scales up production, charges higher prices in the product market, enjoys higher nominal value added per worker, and experiences no decrease in profits. We show that this result is a direct implication of the labor- and product-market power that the average manufacturing firm possesses, in combination with a reallocation of inputs and industry revenue shares from smaller and less unionized firms to larger and more unionized firms. Larger firms are, therefore, increasing employment and output at the same time their ability to mark up prices is growing, thereby preventing negative profit effects. For the broader private sector in which firms do not hold much price- or wage-setting power, we observe the opposite result: the average firm reduces employment and profit falls. We synthesize these findings through a partial-equilibrium model of firm decision-making that incorporates union bargaining, product-market price-setting power, and labor market monopsony power.

Discussant(s)
Laura Giuliano
,
University of California-Santa Cruz
Raffaele Saggio
,
University of British Columbia
David Card
,
University of California-Berkeley
Garima Sharma
,
Princeton University
JEL Classifications
  • J23 - Labor Demand
  • J51 - Trade Unions: Objectives, Structure, and Effects