Does a Minimum Wage Boost Automation and Outsourcing?
Economic Policy, Applied Economics
Final Report Abstract
Much of the literature on the labor market impact of minimum wages has focused on employment or displacement effects. We investigate instead whether the adoption of minimum wages encourages firms to invest in capital intensity or outsource some of their production steps. Our analysis exploits rich balance sheet data on firms, which were exposed to industry-specific minimum wages in Germany. We find that incumbent firms in industries with more scope for capital-labor substitution and a higher routine task share increase their capital intensity. In particular, it is the less capital-intensive firms in these industries that invest the most in capital deepening. There is also evidence that firms entering the treated industries raise their capital intensity after the minimum wage introduction. We find only a weak effect of minimum wages on outsourcing but sizable increases in revenues. The latter indicates that a part of the higher labor costs were passed on to consumers through higher product prices.
Publications
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(2022), “Essays on Labor Economics and Applied Econometrics, Inauguraldissertation, Wirtschaftswissenschaften der Universität Mannheim
Kristina Zapp
