Minimum Wage and Individual Worker Productivity: Evidence from a Large Us

Decio Coviello (HEC Montreal)
Erika Deserranno (Kellogg)
Nicola Persico (Kellogg)

Abstract: We study the effect of increasing the statutory minimum wage on individual worker productivity. Within a workforce of base+commission salespeople from a large US retailer, and using a border-discontinuity research design, we document that a 65 cents (one standard deviation) increase in the minimum wage increases individual productivity (sales per hour) by 2%. With the help of a model, we seek evidence in favor of two distinct channels through which this productivity gain could arise: a demand increase, and an incentive effect due to the increase in compensation, part of which may be endogenous due the firm adjusting its compensation scheme. We find evidence only for the second, that is, the compensation scheme channel. Further, we find that the productivity gains are concentrated among low-productivity workers, and arise mostly during high-unemployment spells, which when read through the lens of our model suggests an efficiency-wage effect. We find some indication that the firm increases base pay in response to minimum wage increases, which is consistent with optimal contracting within our model, but the model suggests that the productivity gain is not fully mediated by this endogenous firm response

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