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The Impact of the Minimum Wage on Firm Destruction, Employment and Informality

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dc.contributor.authorAcar, Aysenur
dc.contributor.authorBossavie, Laurent
dc.contributor.authorMakovec, Mattia
dc.date.accessioned2019-02-21T21:17:09Z
dc.date.available2019-02-21T21:17:09Z
dc.date.issued2019-02
dc.description.abstractThis paper studies the effects of a large increase in the minimum wage on the destruction of formal firms, and the associated impacts on employment, wages, and informality in a developing economy. It examines the ramifications of a 33 percent nominal increase in the minimum wage that took effect in Turkey in 2016. It utilizes an exceptionally rich, employer-employee-linked dataset that shows the wage distribution within firms, which enables to measure the degree of firms’ minimum-wage exposure, and to estimate causal effects using a difference-in-differences approach. The paper shows that raising the minimum wage substantially increased the destruction of formal firms, leading to a fall in the number of formal firms in the economy. Effects are concentrated among small firms with low levels of productivity; highly productive firms are unaffected. The minimum-wage increase had negative effects on formal employment that largely originated through firm destruction, rather than through cuts in formal employment within surviving firms. Among workers who lost jobs in firms that ultimately exited, only a minority had obtained new employment a year later. The minimum-wage increase was accompanied by a rise in inactivity and unemployment, rather than growth of informal employment, suggesting that workers who lost formal employment mostly failed to find new jobs one year after the minimum wage hike, even informally. While the higher minimum wage had large, positive effects on the wages of formally employed workers, limited effects on the wages of informal workers are reported.en
dc.identifierhttp://documents.worldbank.org/curated/en/922261550256034160/Do-Firms-Exit-the-Formal-Economy-after-a-Minimum-Wage-Hike-Quasi-Experimental-Evidence-from-Turkey
dc.identifier.doi10.1596/1813-9450-8749
dc.identifier.urihttps://hdl.handle.net/10986/31312
dc.languageEnglish
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 8749
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.subjectMINIMUM WAGE
dc.subjectEDUCATIONAL ATTAINMENT
dc.subjectPOVERTY
dc.subjectLABOR PRODUCTIVITY
dc.subjectFIRM BEHAVIOR
dc.titleThe Impact of the Minimum Wage on Firm Destruction, Employment and Informalityen
dc.typeWorking Paperen
dc.typeDocument de travailfr
dc.typeDocumento de trabajoes
dspace.entity.typePublication
okr.crossref.titleDo Firms Exit the Formal Economy after a Minimum Wage Hike?: Quasi-Experimental Evidence from Turkey
okr.date.disclosure2019-02-16
okr.doctypePublications & Research
okr.doctypePublications & Research::Policy Research Working Paper
okr.docurlhttp://documents.worldbank.org/curated/en/922261550256034160/Do-Firms-Exit-the-Formal-Economy-after-a-Minimum-Wage-Hike-Quasi-Experimental-Evidence-from-Turkey
okr.guid922261550256034160
okr.identifier.doi10.1596/1813-9450-8749
okr.identifier.externaldocumentum090224b0873bad1b_3_0
okr.identifier.internaldocumentum30838184
okr.identifier.reportWPS8749
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/922261550256034160/pdf/WPS8749.pdfen
okr.region.administrativeEurope and Central Asia
okr.region.countryTurkiye
okr.statistics.combined6231
okr.statistics.dr922261550256034160
okr.statistics.drstats5138
okr.topicPoverty Reduction::Inequality
okr.topicPrivate Sector Development::Private Sector Economics
okr.topicSocial Protections and Labor::Employment and Unemployment
okr.topicSocial Protections and Labor::Labor Markets
okr.topicSocial Protections and Labor::Labor Standards
okr.topicSocial Protections and Labor::Wages, Compensation & Benefits
okr.unitSocial Protection and Jobs Global Practice
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