IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2408.03659.html
   My bibliography  Save this paper

Firms' Risk Adjustments to Minimum Wage: Financial Leverage and Labor Share Trade-off

Author

Listed:
  • Ying Liang

Abstract

This paper evaluates the impact of the German minimum wage policy on firms' financial leverage. By using a comprehensive firm-establishment-employee linked dataset and a difference-in-differences estimation with firm-level variation in treatment intensity, the analysis shows that the average minimum wage level reduces firms' financial leverage by about 0.5 to 0.9 percentage points, corresponding to 1 to 2 percent of the mean of financial leverage. Further investigation of the mechanism shows that the minimum wage does not lead to significant capital-labor substitution; therefore, the labor share increases. Firms react to the increased labor share by deleveraging. The results suggest that while the minimum wage benefits workers by allocating more earnings to the labor force, it also introduces greater operating risks and encourages conservative financial behavior among firms.

Suggested Citation

  • Ying Liang, 2024. "Firms' Risk Adjustments to Minimum Wage: Financial Leverage and Labor Share Trade-off," Papers 2408.03659, arXiv.org.
    • Handle: RePEc:arx:papers:2408.03659
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2408.03659
    File Function: Latest version
    Download Restriction: no
    ---><---

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2408.03659. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.