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Minimum Wage And Manufacturing Labor Share: Evidence From North Macedonia

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  • Marjan Petreski

    (University American College Skopje, North Macedonia)

  • Jaakko Pehkonen

    (University of Jyvaskyla, Finland)

Abstract

The objective of the paper is to understand whether the minimum wage plays a role in the labor share in the manufacturing sector in North Macedonia. We decompose the movements of the labor share into those along a share-capital curve, shifts of this locus, and deviations from it. We use the capital-output ratio, total factor productivity and input prices to capture these factors, while the minimum wage is introduced as an element that shifts the curve. We estimate a panel of 20 manufacturing branches over the period 2012-2019 with FE, IV and system-GMM estimators. We find that the role of the minimum wage for the labor share is industry-specific. In labor-intensive and low-paid industries, it increases workers’ labor share, which corresponds to a complementarity between capital and labor. For capital-intensive branches, it reduces labor share, likely through the job loss channel and along a substitutability between labor and capital. This applies to both branches where foreign investment and heavy industry are integrated.

Suggested Citation

  • Marjan Petreski & Jaakko Pehkonen, 2024. "Minimum Wage And Manufacturing Labor Share: Evidence From North Macedonia," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 33(2), pages 377-402, December.
    • Handle: RePEc:avo:emipdu:v:33:y:2024:i:2:p:377-402
    DOI: 10.17818/EMIP/2024/2.2
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    Cited by:

    1. Ying Liang, 2024. "Firms' Risk Adjustments to Minimum Wage: Financial Leverage and Labor Share Trade-off," Papers 2408.03659, arXiv.org.

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    More about this item

    Keywords

    labor share; capital endowment; minimum wage; North Macedonia;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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