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Are Firms Willing to Pay Lower Wages? A Quasi-Experiment on Subminimum Wage Policy

Author

Listed:
  • Petri Böckerman
  • Toni Juuti
  • Tuomas Kosonen
  • Henri Keränen

Abstract

We examine a subminimum wage policy in the Finnish retail trade sector during 1993–1998 that allowed ?rms to pay subminimum wages to newly hired workers under the age of 25. This quasi-experiment enables us to compare wages for new hires in retail trade with those in similar industries. Despite the ongoing recession, the policy was adopted by ?rms sparingly, with most eligible workers being hired at the standard minimum wage. We propose that wage norm at the standard minimum wage creating indirect costs for ?rms paying subminimum wage would be the mechanism why the take-up of subminimum wage by ?rms remained low. We provide empirical evidence supporting this mechanism, most notably the excess mass at the standard minimum wage in the wage distribution of eligible workers. Many ?rms that paid the subminimum wage also reverted back to paying the standard minimum wages for subsequent hires.

Suggested Citation

  • Petri Böckerman & Toni Juuti & Tuomas Kosonen & Henri Keränen, 2024. "Are Firms Willing to Pay Lower Wages? A Quasi-Experiment on Subminimum Wage Policy," Working Papers 348, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    • Handle: RePEc:pst:wpaper:348
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    File URL: https://labore.fi/wp-content/uploads/2024/11/Tyopapereita-348.pdf
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    More about this item

    Keywords

    minimum wages; subminimum wage; wage determination; fairness; employment; firms;
    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
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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