Firms and the minimum wage: profile and profitability

The objectives of this study are to draw a profile of firms with employees paid at the minimum age level and to examine the correlation between profitability and exposition to the minimum wage. This exposition to the minimum wage is measured through the proportion of the firm’s employees affected by the annual increases of the minimum wage. The profitability of the firm is approached through four indicators: margin rate, gross and net economic profitability and financial profitability. The exposition to the minimum wage is greater for smaller, younger, independent and capital intensive firms, especially in the hotel, food service and trade industries. An econometric analysis, controlling firms’ size, industry and age, shows no significant link between exposition to the minimum wage and profitability. This doesn’t mean that the minimum wage has no effect whatsoever on a firm’s profitability. Other mechanisms can interfere, for example the fact that the exposition to the minimum wage and the profitability can be codetermined by unobserved factors, such as the negotiation power of the firm on the labour market. Firms could also have adapted their productivity or the structure of the workforce to the enduring presence of a minimum wage, reaching a form of equilibrium.